Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

Oral Answers to Questions — SOCIAL SECURITY

Family Support

Mr. Jacques Arnold: To ask the Secretary of State for Social Security what measures his Department has taken to maintain support for families.

The Secretary of State for Social Security (Mr. Peter Lilley): We have fulfilled our manifesto commitment to increase child benefit in line with prices. We have also already made extra help worth around £1 billion a year available to low-income families with children. From October 1994, we are introducing a £40 disregard of child care costs for claimants of family credit and housing benefit. This will remove one of the major stumbling blocks in enabling low-income parents to be better off in work and thus to reduce dependency on benefits.

Mr. Arnold: Does my right hon. Friend agree that the £40 disregard in respect of child care costs is very much less than many organisations were pressing for? Does that not show the Government's determination to assist parents to get back into work?

Mr. Lilley: I think that my hon. Friend meant to say "more" than many institutions were pressing for. The

booklet, "Becoming a Breadwinner", issued by the Day Care trust, advocated a £35 a week disregard. We are going for slightly more than that—a £40 a week disregard, which will be worth £28 a week for lone parents and working married couples returning to work.

Mr. Kirkwood: Will the Secretary of State acknowledge that future provision for families is part of the long-term series of reviews that his Department is conducting? Putting it neutrally, it is very difficult for people to conduct and engage him in sensible discussions about long-term future provision. In every speech that he makes and every television interview that he gives the Secretary of State is interpreted, rightly or wrongly, in different ways at different times. It is difficult to know whether the Secretary of State is coming or going. Would it not be better for him and for us if he were to make clear the remit of all the internal Government committees and what papers they are working to? We could then all engage in a proper public debate.

Mr. Lilley: I am grateful to the hon. Gentleman for his positive contribution to the debate. I advise him to listen to what I say and to regard what I do, and not to listen to second-hand commentaries. He will then see a consistent theme. We believe in supporting and sustaining the traditional family and, wherever possible, encouraging families to consist of two loving parents. We accept that that is not always the case, and where families break up we want to provide support with the interests of the child in mind. That lies behind the measures announced in the Budget to enable parents to work and improve their well-being while providing proper child care for their children. That is consistent with everything that I have said and the Government have done. We would welcome any positive contributions from the Liberal Democrats, unusual as that might be

Mr. Winnick: In view of the remarks made by the Secretary of State yesterday, is it not clear that child benefit will not be retained as a universal benefit if the Tories were to cling to office? In view of that, is there not every reason for people to be very concerned? The welfare state is being eroded and undermined at every stage. No one has any


confidence that the Secretary of State or the Government believe in the welfare state, and there is every expectation that they will use their power to undermine it.

Mr. Lilley: The hon. Gentleman is peculiarly ill informed. There have been two statements about child benefit in the past 24 hours. I have reaffirmed the Government's manifesto pledge to maintain child benefit as part of our provision for families with children. The Commission for Social Justice, established by the Labour party, suggested that it should be abandoned and replaced by national child care.

Child Support Agency

Mr. Burns: To ask the Secretary of State for Social Security if he will make a statement on the operation of the Child Support Agency.

Mr. Spellar: To ask the Secretary of State for Social Security if he will suspend the operations of the Child Support Agency.

The Parliamentary Under-Secretary of State for Social Security (Mr. Alistair Burt): The Child Support Agency was set up to secure more maintenance more reliably for more children, and that is what it is doing. I have, of course, been examining the criticisms that have been made of some aspects of the new scheme. The work of the Child Support Agency in securing maintenance for children will continue.

Mr. Burns: Does my hon. Friend accept that most people—including the authors of the Select Committee report that was published this afternoon—acknowledge the principle that fathers, including absent fathers, should pay for the upkeep of their children? Will he bear in mind, however, that in areas such as Chelmsford, and even St. Albans, a significant proportion of the working population commute down to London and that total commuting costs are in excess of £200 per month? Given that the average non-endowment mortgage repayment is now just over that amount, would my hon. Friend be prepared to look again at the formula in respect of travel-to-work costs to establish whether something could be done to alleviate the burden for fathers?

Mr. Burt: I am grateful to my hon. Friend for his opening remarks, and for picking up the fact that the Select Committee has today endorsed the basic principles and operation of the Child Support Agency.
My hon. Friend's point about provision in the formula for specific expenses was discussed extensively with the Select Committee. I believe that the Committee is coming to the same conclusion as the Government—that it is very difficult to make extra allowances for different kinds of expenses because what is essential to one is not essential to another. We have endorsed that principle and have therefore tried to ensure that the amount of income available to the absent parent is around 70 to 85 per cent. of net income in order to cover the costs.
The Select Committee made some recommendations, as well as making supportive comments. I shall examine those recommendations together with other aspects that have been raised with us in connection with our own review.

Mr. Spellar: Regrettably, the Minister's reply was very unsatisfactory. Although he welcomed the report, he did not specify the parts to which the Government would respond.

Mr. Miller: We are usually given a statement in that time.

Mr. Spellar: As my hon. Friend points out, we seem to be given statements very quickly. These problems have been going on for a long time. Some Conservative Members may not have noticed that thousands of families across the country are being thrown into chaos. We have already had the first suicide resulting from the operation of the Child Support Agency. Does the Minister recognise that the fundamental problem has been caused by an attempt to force all the individual circumstances of thousands of different families into a national straitjacket? Is it not time to suspend the agency's operations until proper guidelines can be incorporated and the matter returned to local determination?

Mr. Burt: I think that what has made the hon. Gentleman unhappy is the fact that his own campaign for the agency's suspension has not been endorsed by the Select Committee in any way. That is because the Committee understands that the agency is already working to produce maintenance for children and that the suspension of its operations would cause chaos for many families who are receiving the money.
With respect, I feel that we must all be extremely careful in dealing with press reports, particularly those concerned with such sensitive issues as suicide. There can be many reasons for such tragic events, and we are certainly not aware that the Child Support Agency has been deliberately and provenly linked to any of them.
It is, of course, much too early to respond to Select Committee recommendations published less than an hour ago. I have given the hon. Gentleman an undertaking—as I did in last Thursday's Adjournment debate—to examine all these matters carefully, and we shall continue to do that. It should be noted, however, that the basic principle of what we are doing—that is, moving away from a discretionary system to a national system based on a formula—has been endorsed.

Mr. Madel: May I endorse what my hon. Friend the Member for Chelmsford (Mr. Burns) said about travel-to-work costs? Will my hon. Friend also note that people cannot appeal against their assessment until a review has taken place? The reviews need to be more thorough, as mistakes are being made. They also need to be carried out more quickly. Will my hon. Friend try to improve the efficiency of the Child Support Agency and speed up its operations?

Mr. Burt: I am sure that to ensure the acceptance of the principles of the Child Support Act it is essential that the agency should operate administratively as effectively as it can. To date, we have had only 174 appeals coming through the system. We shall keep a careful eye on the work of the independent tribunal service which considers those appeals. I understand my hon. Friend's point, which was well made.

Ms Rachel Squire: Does the Minister agree that, as other hon. Members have said, the Child Support Agency should take account not only of travel expenses but of


items such as council tax, insurance costs and fuel bills? Does he further agree that it is totally unreasonable to expect one of my constituents—who is one of many—to be asked to live on a meagre £6·49 a week after he has paid his bills and met the increased maintenance costs, which he has always paid up to now? Does the Minister agree that response is considerably overdue on the points that I raised with him in October and early November about my general concerns about the operation of the CSA, especially the way in which responsible parents who have always paid maintenance are targets who are asked to pay more, while those who are irresponsible and have paid nothing continually get away with it?

Mr. Burt: I am not happy to accept the figures offered by the hon. Lady and I would welcome her clarification of them as they do not correspond with what should be the situation. The matter of targeting has been considerably distorted by media reports which do not give due credibility to the fact that some half of the work going on at the CSA at the moment is concerned with cases in which no maintenance has been in payment at all. In response to whether there are soft targets and people being unduly picked on, I will quote briefly from one paragraph of the Select Committee report because it considered the matter carefully—

Dame Elaine Kellett-Bowman: What paragraph?

Mr. Burt: Paragraph 18. It states:
A large part of the public debate about the Child Support Agency has centred on the accusation that it was picking unfairly on 'soft targets', that is, those absent parents who were already making maintenance payments. Behind this accusation has been an allegation that the Agency's work is governed by the requirement to make substantial savings in the social security budget. We believe this objective to be an important one—

Madam Speaker: Order. I remind the Minister that it is Question Time.

Mr. Burt: Yes, Madam Speaker. It continues:
The Committee believes that taxpayers have for too long been asked, in effect, to pick up maintenance bills that should have been met by absent parents.
We strongly agree.

Mr. Barry Porter: I am pleased to have an opportunity to back the Government's policy of getting "back to basics", but does my hon. Friend accept that when we voted overwhelmingly in favour of the legislation we thought that it made sense that the evil absent father was to be the target. However, after all the letters that I and other hon. Members have had about the matter, surely the Government must now take into account all the objections, which I share with the hon. Member for Dunfermline, West (Ms Squire), that there is something wrong and it ought to be put right.

Mr. Burt: The agency is indeed pursuing those who have not paid. Its take-on strategy was clearly declared before the Act came into force and the Select Committee considered that. We are looking at the matters of concern that have been raised, but I urge my hon. Friend to acknowledge that some parents have been traced by the agency who would never have been traced under the previous system. We are delivering what the public want through the agency.

Mr. Dewar: Does the Minister accept that it is essential to consider urgently the important recommendations made

in the Select Committee report, especially those which add safeguards for second families, and deal with the protected income provisions? Will he also give an undertaking to look beyond the Select Committee report, especially at the experience in Australia, where it is possible to go to a review officer and depart from the usual rigid financial formula if special circumstances can be established? Will he consider the possibility of a disregard for income support to ensure that the children who are at most economic risk—those in families living on income support —gain support from a system which was introduced in their name and from which they often miss out?
Is not the Minister conscious of the very real danger that without urgent action there will be a breakdown of consent and that at the end of the day damage will be done to the very principle of parental responsibility?

Mr. Burt: I note what the hon. Gentleman says. The Select Committee report will be due a proper reply when its recommendations are looked at carefully. I undertake that the Government will give that reply. In relation to the principle behind the agency, it will help if it is recognised that the Select Committee has looked carefully at the fundamental objections put to it, but that it has essentially endorsed the existing principle and the work of the agency.
In the majority report, the Committee has recognised the importance of shifting the burden from taxpayers to those who should be most responsible for paying—the parents. That is the principle to which the whole House previously held, and it has now been further endorsed. If the work of the agency in dealing with parents who have not paid and in tracing parents who have been difficult to trace were recognised as it should be, there would be greater understanding and acceptance of the principles of the work of the agency.

Dame Elaine Kellett-Bowman: Does my hon. Friend agree that priority is now being given to cases in which a court order can no longer be given? Does he further agree that it is vital that parents who are already paying successfully should not in any way be victimised?

Mr. Burt: First, my hon. Friend is right to say that we give priority to parents who must use the agency because they have no other mechanism to use. That involves people who have some dependence on benefit as well as those who do not. Secondly, it cannot be classed as any form of victimisation to ask people to pay sums towards their children which they are due to pay under the law. We recognised from the start that there would have to be an increase in the amount paid in many cases to provide a realistic sum of maintenance. That work is going on and is another principle endorsed by the Select Committee. Given time, the principles will be accepted and the work of the House in passing the Act, with immense good will on both sides, will be vindicated.

Invalidity Benefit

Mr. Wigley: To ask the Secretary of State for Social Security what steps he intends to take to safeguard the needs of those dependent on invalidity benefit; and if he will make a statement.

The Minister for Social Security and Disabled People (Mr. Nicholas Scott): I refer the hon. Gentleman to the statement that my right hon. Friend made to the House last


week. He said—and I repeat—that there will be no cash losers among existing beneficiaries of invalidity benefit at the point of change.

Mr. Wigley: Is the Minister aware that citizens advice bureaux in all parts of these islands are reporting cases of severely disabled people having their invalidity benefit withdrawn? They say that when the cases go to appeal, the independent tribunal service comes out against the Benefits Agency. Is he aware of the cases of disabled people being told that they should be looking for jobs such as swimming pool attendants, embalmers or artists' models? Surely that is not the road we should be going down. Will the Minister give an assurance that in any new regime severely disabled people will not be put in an invidious position?

Mr. Scott: The simple target set by the replacement of invalidity benefit with incapacity benefit will be to ensure that those who are rendered incapable of work by reason of their medical condition will receive benefit. Those who do not pass that test will not.

Mr. Waterson: Does my right hon. Friend agree that the people who will most welcome a more rigorous medical check for cases of invalidity benefit are those of our constituents who are genuinely incapable of work due to disability of one sort or another?

Mr. Scott: I certainly agree with my hon. Friend. Another group who will widely welcome the reforms being introduced are general practitioners who have not found it an attractive duty to be gate-keepers for the existing benefit.

Mr. Bradley: Is not the truth about the new incapacity benefit best summed up by the Disability Alliance, which described it as
penny pinching at its most callous"?
Will the Minister confirm that terminally ill people who are eligible for the new benefit will have to wait 12 months before they receive the full rate of entitlement? Will he explain today the objective difference in employment prospects for persons who, according to the new test, will receive 25 points if they "cannot remain standing unassisted" and for persons who will receive only 21 points because they cannot remain
standing unassisted for more than a few minutes"?

Mr. Scott: On the medical tests, the hon. Gentleman knows that we have published a consultation document which is now being considered by a number of organisations and individuals. A panel of some 80 people is being recruited to analyse the tests and to make judgments on their effectiveness. We believe that that is the right way—it is based, after all, on the methodology used by the Office of Population Censuses and Surveys on which the disability living allowance was based. That is a sound way of judging entitlement to the new benefit. We shall consult widely, and we will listen in particular to medical opinion about the effectiveness of the tests.
The hon. Gentleman knows that special arrangements have been made under the DLA for all claims from terminally ill people to be put on to a special fast track. That target is now being met and exceeded for those benefits.

Mr. Ian Taylor: Will my right hon. Friend take no nonsense from the Opposition on this, as benefits paid to the sick and the disabled have trebled to £15 billion up to

this year? Does that not show the Government's commitment? Will my hon. Friend confirm that existing beneficiaries will not have to pay tax on their benefits under the new arrangements? Will my right hon. Friend restate the Government's concern, and will he make sure that there is no misunderstanding or scaremongering by the Opposition?

Mr. Scott: I confirm what my hon. Friend says. Existing beneficiaries are not to be taxed. In general, we have taken the view that benefits paid as income replacement should be subject to tax; that is why the new benefit will be taxable.

Disability Living Allowance

Mr. Skinner: To ask the Secretary of State for Social Security how many disability claims are outstanding at the present time.

Mr. Scott: I assume that the hon. Gentleman is referring to claims for disability living allowance. At 30 November, the latest date for which information is available, there were 25,372 such claims on hand.

Mr. Skinner: Are not the Government more interested in looking after themselves and their big business allies than in looking after the disabled? Is it not a scandal that they are now talking about imposing new tests on people who claim disability, invalidity and unemployment benefits? Why can Ministers who fall ill get money every week and every month without having to go through one of these ludicrous tests? The Secretary of State is sitting next to the Minister. How would the right hon. Gentleman like to have to push a wheelbarrow, hold a 5 lb bag of potatoes in either hand or wear a saucepan on his head? And is that not all that he is fit for?

Mr. Scott: If the hon. Gentleman will calm down slightly, he will learn that the Government have a record of helping the disabled unparalleled by any previous Administration. We have trebled the resources which go to the long-term sick and the disabled through the benefits system and a number of other improvements have been made to provisions for the disabled.
I find it objectionable that the hon. Gentleman makes mock, in essence, of the system that we are endeavouring to provide. That system was properly prepared to introduce DLA, which has had widespread support from organisations of and for disabled people. We intend to use that system for a new benefit and we are consulting widely —not least with those organisations.

Mr. John Marshall: Will my right hon. Friend tell the House how many people have benefited from DLA? Does my hon. Friend remember the speeches in Committee from the hon. Member for Oldham, West (Mr. Meacher) implying that few people would benefit? Does my hon. Friend agree that many have done so?

Mr. Scott: More than 1 million people have now benefited from the introduction of DLA, and their claims are being dealt with at an ever-increasing rate. We know that there were difficulties when DLA was introduced, due to a surge in claims which came because of the attractiveness of the benefit. The Benefits Agency now is exceeding by a considerable margin each target that it has been set for the delivery of benefit.

Mr. Sheerman: Whatever happened to basic values? In the good old days of basic values, when there was incompetence from a Secretary of State and a mix-up of the kind that happened with DLA, did not Ministers resign? Will not all the trouble, distress, heartache and ill-health which was brought on disabled people by the delays and the incompetence be repeated by the incapacity benefit? Is it not a fact that disabled people who are now on those benefits do not know what the criteria will be? Will the Minister start saying something about the criteria—in particular in relation to the sensitive subject of mental ill health and people suffering from stress-related diseases?

Mr. Scott: The hon. Gentleman will recall that I apologised for the difficulties over the introduction of DLA both to the House and to those who suffered distress as a result. That is all behind us now and I do not believe that the new benefit will run into such difficulties. Let me make it clear, not so much to the House as to the audience outside, that the new benefit will not come in until 1995 and that there is ample time for proper provision to be made for its introduction and for all decisions about the nature and operation of the tests to be properly considered before that date.

Child Benefit

Sir Michael Neubert: To ask the Secretary of State for Social Security how many increases in child benefit have been announced in the past two years.

The Parliamentary Under-Secretary of State for Social Security (Mr. William Hague): Child benefit has already been increased three times since October 1991 and my right hon. Friend announced on Tuesday a further increase to take effect in April 1994.

Sir Michael Neubert: Can my hon. Friend confirm that Government spending on families with children has increased by 50 per cent. since 1979—over and above price increases in that time—and that our child benefit scheme compared favourably with European equivalents? Does my hon. Friend accept, however, that it is wise not to exclude the possibility of any change in the scheme in the future, given the Government's strategy of targeting assistance on those most in need?

Mr. Hague: My hon. Friend is right to draw attention to the large increase on spending on families with children —a 50 per cent. increase since 1979, compared with an 8 per cent. reduction between 1974 and 1979, which Opposition Members should remember. On the question of future policy, I should say to my hon. Friend that the manifesto commitment remains absolutely clear: child benefit remains the cornerstone of our policies for families and children, helping mothers who remain at home as well as those who work.

Child Support Agency

Mr. Alan W. Williams: To ask the Secretary of State for Social Security if he will conduct an urgent review into the operation of the Child Support Agency.

Mr. Lilley: I have always made it clear that we will be keeping the policy under review. We are looking at the comments and concerns raised and testing them against the

basic principles of the new scheme, which were endorsed by members of all parties. If, after examination, we think that we can make the scheme better still, we will do so.

Mr. Williams: Will the Secretary of State confirm that the Child Support Agency is expected to raise £550 million in this financial year and that, of that total, only £50 million will go to help support children? Will he tell us what the agency is really for? Is it simply to help the Treasury, or does it have a role in supporting children?

Mr. Lilley: The purpose of the agency is twofold—first, to ensure that both parents accept responsibility for maintaining their children and, secondly, that the taxpayer should contribute only if parents do not have the resources to maintain their children. I was glad that that principle was endorsed by the Select Committee on Social Security in its report published earlier today.

Dame Elaine Kellett-Bowman: Paragraph?

Mr. Lilley: Eighteen again. The report states:
The Committee believes that taxpayers have for too long been asked, in effect, to pick up maintenance bills that should have been met by absent parents.

Mr. Cash: Will my right hon. Friend note that half the questions asked today have been related to the Child Support Agency? We are delighted to hear that he is suggesting that the whole matter could be reviewed in the light of what the Select Committee said today and because of the common-sense practical approach that he takes to such matters. I have come across a number of serious problems in my constituency. I am absolutely convinced that the 60 or so people who came to see me the other day are not inventing the difficulties about which they told me and I urge my right hon. Friend to look carefully at the representations that he has received and, if necessary, to make the appropriate adjustments to the statutory formula, to ensure that the agency works as intended in line with the principles on which we all agree.

Mr. Lilley: I am glad that, like most hon. Members, my hon. Friend accepts the principles on which the agency is based. There have, of course, been widespread protests. My hon. Friend will remember that, before the agency began its work, I spoke to him and to many other colleagues in the House and warned them that although the expectation would be resistance from and difficulties for women when the agency was introduced, in fact the reaction would come from men who were reluctant to pay in full the costs of maintaining their children. We must recognise that there is inevitably some resistance to paying in full the costs of maintaining children if people have not been doing so until now.

Mr. Ingram: Does the Secretary of State accept that there is real anger—as evidenced in questions that have been raised by Conservative Members, and, not least, by hon. Members from other parts of the House—at the way in which the Act has been implemented in practice and that the patience of those who have been targeted by the agency is rapidly running out? When does he expect his Minister to report to the House on the Department's review of the agency? Will he give an assurance that the review will rest on the needs of the children, not the Treasury?

Mr. Lilley: The hon. Gentleman talked about targeting and my hon. Friend the Under-Secretary of State explained that the take-on schedule of the agency has not been


changed. I remind the hon. Gentleman that, in 96 per cent. of the cases so far contacted by the agency, the mother and child are on benefit and the father usually has a reasonable income. That fact has not come over in many of the representations that have been made. It is rare for the fathers to mention that they have been content to leave their child, and the mother of their child, on benefit.
Two thirds of those whom we are taking on this year have been paying no benefit at all and we have been much more successful than many people suggest in tracking down absent fathers who had left without any trace—92 per cent. have now been traced. We will take those facts into account while keeping the agency under review, as well as the points that the hon. Gentleman made, which, of course, I recognise also have a significance.

Mr. Tredinnick: To ask the Secretary of State for Social Security what assessment he has made of the extent to which Child Support Agency decisions have resulted in a second wife making a contribution to the maintenance of the first wife.

Mr. Burt: There are no circumstances in which a second wife of an absent parent will be required to contribute to the maintenance of the first. Details of the earnings of an absent parent's new partner are needed for just two reasons: first, to assess whether she can afford to contribute towards the upkeep of her own children in the new relationship; and, secondly, to determine whether the amount of maintenance that the absent parent has been assessed to pay can be reduced under the protected income provisions.

Mr. Tredinnick: Does my hon. Friend agree that, however laudable his aims, there are real problems faced by fathers when they receive a bill for 15 weeks' maintenance if they have not been quick enough off the mark in getting the form in? Does he further agree that that, for whatever reasons, is causing real hardship and that there is a danger that the second family will end up trying to support the first family through a circuitous route?

Mr. Burt: On my hon. Friend's point about arrears, it is not the case that those arrears need to be paid off immediately; the agency fully understands the impact that a sizeable amount of arrears might have on a family and it is possible to negotiate with the agency how the arrears should be paid off. It should also be remembered that there is another voice, which tends not to come out in press reports, and has not come out much here, although it has been commented on by the Select Committee. At the end of all this, there is a parent and a child who are entitled to receive the maintenance. That voice is all too rarely heard.
As to my hon. Friend's point about protection of the second family, they are protected through the formulae. Matters that my hon. Friend and others have raised will be taken into account.

Mr. Rooney: Does the Minister accept that the principle of the absent parent paying maintenance was accepted at the time before the formula was published? The formula was published some time after the Bill went through Committee and the House. Does he further accept that, if children are in a family situation where benefit is paid, the involvement of the Child Support Agency should be limited to the amount of benefit in payment for those children and that any additional maintenance recovered should go to the family?

Mr. Burt: The formula was part of the Act. It was debated and consulted on. As to social security,
it was always intended that, in cases where it was assessed that the absent parent could afford to do so, the financial responsibility for the care of children should move from the social security system to the absent parent. In some cases maintenance will be a substitute for Income Support; in others, the sums received by the children will certainly improve their circumstances.
That is a quote from paragraph 20 of today's Select Committee report.

Mr. Harris: Is not it clear to my hon. Friend that every hon. Member accepts that the agency is a good idea—

Mr. Skinner: No.

Mr. Harris: As usual, the hon. Member for Bolsover (Mr. Skinner) is the odd man out. However, most of us feel that the agency has gone drastically wrong in the details and the implications of the scheme. Will he have a word with my right hon. Friend the Secretary of State and ask him whether he remembers the warning that I gave him, that all hell would break out if court settlements were retrospectively overturned by the agency rather than by the courts? That is what has happened, particularly where husbands have made over houses to their wives. Much of the resentment and many of the difficulties stem from that.

Mr. Burt: The principles have been broadly endorsed by the House on a number of occasions and again today by the Select Committee and I do not accept that the way in which the agency has worked has been contrary to the character envisaged. However, some adjustments have been suggested and we are conscious of the criticisms that have been made and are endeavouring to meet them. We have tried to address the central point and the central principles, including the difficulty with the so-called clean break principle. I spent a lot of time on that with the Select Committee, which recognises that there is no other way for the formula to deal with the situation than the way in which we are dealing with it now.
We tried to ensure that we were fair to both sides after the clean break has been made. We are pleased with the endorsement of principle. We shall look at the criticisms and difficulties raised—we do not minimise them. Today has been a good day for the Child Support Agency and for the House, which originally wanted that change. It is up to us to make sure that it happens in a manner that the House finds fully acceptable.

Oral Answers to Questions — DUCHY OF LANCASTER

Market Testing

Mr. Garnier: To ask the Chancellor of the Duchy of Lancaster what representations he has received urging him to impose a moratorium on the market testing programme.

The Parliamentary Secretary, Office of Public Service and Science (Mr. David Davis): First, the Chancellor regrets that he cannot be here today. He is attending a conference in Brussels of the Council of Ministers, discussing the future of the framework for research programmes.
The Council of Civil Service Unions has asked me to impose a moratorium. I note also that early-day motion 2587, dated 3 November 1993, called on the Government to halt the market testing programme.

Mr. Garnier: I am grateful to my hon. Friend for that answer. Does he agree that a moratorium would be a grave setback to other welfare spending projects? Has not the present system enabled £100 million worth of savings to be made—savings that will continue to be made every year? Will he confirm that, in encouraging market testing, he is, contrary to the behaviour of the Labour party, which is backed by trade unions, putting the public first and not the providers?

Mr. Davis: My hon. Friend is right. That sort of money would pay for a couple of hospitals, 50,000 primary school places or 10 secondary schools. All those items of expenditure would be in the public interest, as is low taxation, although the Labour party never seems to learn that.

Mr. Garrett: Why does not the Minister call for a moratorium on market testing until it can be shown to have led to any improvement in service to the customer? That is the one element missing from any statement that Ministers make on market testing. They cannot show that it leads to an improvement in service to the customer.

Mr. Davis: As ever, the hon. Gentleman is wrong. The market testing programme carried out this year was followed up by a review by my Department, with the managers of the individual services, asking what has happened to the quality of service provision. In every case, it was at least as good as that preceding it and, in 32 per cent. of cases, it was better.

Mr. Jenkin: To ask the Chancellor of the Duchy of Lancaster if he will indicate the size of his Department's 1993–94 market testing programme and what it was in 1991–92.

Mr. David Davis: The size of the market testing programme for the Chancellor of the Duchy of Lancaster's Department in 1993–94 is some £23·7 million, which is about the same as for the whole Government in 1991–92, and some 30 times higher than in their own earlier programme.

Mr. Jenkin: I congratulate my hon. Friend on the good example set by his Department in saving money and improving services to its customers. Does he agree that it is necessary to find service improvements and cash savings through the market testing programme, to enable the Government to achieve the public expenditure totals that they set themselves in the Budget? Is not it also important to realise that that can be done while improving quality for the customer?

Mr. Davis: My hon. Friend is right. Our programme has identified savings of some £5 million, which is about 28 per cent. on the base cost of what has been addressed and roughly four times the cost of the analysis programme. We have heard a great deal of barracking from the Opposition about worse service or the absence of quality improvements. I will give them one example that centres solely on service improvement. I refer to the Strangeways prison market test, which was one by—

Mr. Garrett: Group 4?

Mr. Davis: No, by the in-house team. That programme made small cost savings but improved the service delivered. It provides prisoners with 35 hours work per week and 60 hours of structured activity. When I think

about it, structured activity is the opposite of what was happening at Strangeways the last time that I saw it on television.

Ms Eagle: Will the Minister admit that many people's experience of market testing—for example, in the health service—is of managers giving themselves massive salary increases? Given the scandals involving the misuse of huge amounts of public money, particularly in places such as Wessex health authority, will the Minister acknowledge that the public are wary of the much-trumpeted advantages of market testing? They see it as just another way of making a quick buck for the Government's friends.

Mr. Davis: The hon. Lady has wandered off into the realm of health service reforms, but my answer to her is entirely in line with the remarks of members of the Opposition Front Bench. They ask, "Ask the customers." For every 100 people treated by the health service before the reforms, 115 are treated now. That is the acid test of any reform.

Mr. John Marshall: Does my hon. Friend agree that the value for money is much more important than jobs for the boys and that where market testing and competitive tendering take place, the customer gets a better service at less cost to the taxpayer?

Mr. Davis: I agree with my hon. Friend and add to his point about jobs for the boys. Sometimes, the virtues of the market testing programme are lost in the propaganda that flies across from the Opposition. The last component of this year's market testing programme was the Inland Revenue's decision to award an information technology contract to EDS-Sicon. It is worth reading the four key objectives of the selection process:
Substantial improvements in cost-effectiveness of IT servicess. Improved speed of delivery in development and enhancement of systems. Rapid access to 1990s skills, tools and technologies.
The final objective—although this is jobs for the boys it also means benefits for the boys, and girls—is to "optimise career opportunities" for the 2,000 existing information technology staff. Market testing can be a programme by which everybody gains.

Mr. Meacher: The Minister confuses objectives with achievement. If the Government really believe in fair competition between the public and private sectors, why are they still trying to wriggle out of the TUPE regulations by claiming that this is a matter of subsidiarity? Does not that make it obvious that the Government know that the private sector can only win on the basis of lower pay and worse terms and conditions for employees, not on the basis of greater efficiency? When the private sector cannot win even on that basis, is not the whole exercise reduced to farce when the Minister refuses to accept an in-house bid that is £1 million lower—as at the driver and vehicle licensing centre in Swansea—or even refuses an in-house bid altogether, as with the Inland Revenue's information technology work? It is clear that that has nothing to do with efficiency but has everything to do with political dogma.

Mr. Davis: I shall answer the six or seven questions that I can remember. The first question was on the DVLA. The exercise to which the hon. Gentleman referred—the so-called £1 million lower exercise—was a bench-marking, theoretical exercise. In case he is worried about that, I inform him that the DVLA will be allowed to bid for


the contract in the next year or so. I do not think that he was listening to what I said about the EDS exercise. One of the points that emerged was the great benefit to staff as a result of EDS being able to find more work and introduce better technology. That helped staff and kept them in their jobs with more and better prospects. Not everybody in the private sector views TUPE as difficult. Indeed, Mr. Cox of Hoskyns has said that TUPE is an advantage because it gives some security in dealing with staff.

Citizens Charter

Mr. Hain: To ask the Chancellor of the Duchy of Lancaster what progress is planned on implementing the citizens charter in next steps agencies.

Mr. David Davis: We expect all agencies that serve the public direct to publish a charter or charter standard statement and to report on performance against it over time. Many agencies, such as the Employment Service and the Benefits Agency, already have a charter. Those that do not are to consider publishing one when their framework document is reviewed. New agencies should have a charter on launch. In the near future, the Department will publish a White Paper—the 1993 review—on next steps agencies in Government.

Mr. Hain: At a time when the DVLA in Swansea is being market tested, is the Minister aware that its staff feel deeply insulted by their special chartermark award, especially as £3,970 was spent on public relations trinkets —money that would have been better donated to a local charity—one of which was a tax disc holder that was illegal according to the DVLA's specification? Is he further aware that they feel deeply insulted that more than £300,000 has been spent on fees to consultancies to oversee the market testing programme, when their jobs are at stake and their futures being destroyed?

Mr. Davis: I repeat to the hon. Gentleman the comments that have been made by Labour Front-Bench spokesmen: the first test of the market testing programme is in the eyes of the customer. The DVLA was awarded a chartermark for providing a good service to the customer, which will help it in winning the next contract. I should not underestimate that. The DVLA staff whom I met were certainly not as he described but were very much in favour of and pleased with winning the award.

Mr. Brandreth: Will my hon. Friend confirm that the point of these agencies is to make the service more responsive and sensitive to the customer and to enable Ministers to raise standards and to ensure that we go more for total quality? Will he let us know what he is doing to ensure that improvements are more widely recognised?

Mr. Skinner: Give him a chartermark pullover.

Mr. Davis: I think that my hon. Friend has enough pullovers of his own.
My hon. Friend is quite right. The aim of the programme is to raise standards year on year. Many processes exist to help to convey the improvements that are being achieved already and to enable best practice to be disseminated throughout the public service. A measure of that is the 10 charter forums that have been held throughout the country, at which public service providers have

compared notes on how they have improved their service to the public and how they can continue the process of development and improvement.

Mr. Bayley: To ask the Chancellor of the Duchy of Lancaster whether the Government intend to increase or reduce the number of citizens charters in the forthcoming year.

Mr. David Davis: The citizens charter covers all public services. Thirty eight charters and many statements of charter standards have been published by Government Departments, agencies and public services. I expect a further two charters to be published in 1994 and up to 10 to be reissued with improved standards.
In addition, a wide range of local services have issued local charters. They cover activities such as police and fire services, hospitals, GPs and local authorities.

Mr. Bayley: Does the hon. Gentleman see the need to protect the quality of service and the efficient use of public money spent by the Franchising Director in purchasing public service rail services by extending the passengers charter to the private sector companies which will be running rail services in the future, or is there to be a different quality threshold for private rail operators than there is for British Rail?

Mr. Davis: The whole point of the franchise exercise is to improve services, to ensure that better services are provided after they have been privatised.

Mrs. Lait: Will my hon. Friend join me in congratulating Strathclyde university on becoming the first university to win a chartermark for the excellence of its career service? Does he agree that it is proof of improving standards in the higher education sector as a response to the market? Does he also agree that there is a great need for continuing improvement in the standards of service offered by the public services?

Mr. Davis: My hon. Friend goes to the nub of the charter, market testing and, indeed, of all Government reform activities. They are aimed at improving the quality and value for money of services. The value-for-money component is by no means in opposition to quality. Often delivering better quality—getting things right first time —means that things do not have to be done twice and that it costs less to do so.

Mr. Matthew Taylor: Has the Minister examined the way in which compensation schemes work under the charters, for example, in the public transport sector where lack of investment means more breakdowns, an increase in compensation payments and, therefore, even less money being available to tackle the causes of those breakdowns? In view of the lack of capital investment, which has been seen most starkly on London Transport in recent weeks, is not it obvious that those compensation packages could tackle the problem that the customer wants to see tackled, which is to get from A to B on time?

Mr. Davis: The hon. Gentleman picked an extraordinary example because London Transport has four times the level of capital investment that it received under the Labour Greater London council. He is pinning down the wrong problem. One of the most important components of improving the reliability of delivery in public as in private service is management. Compensation does two things: the


first is to give proper and appropriate recompense to those who have suffered from poor service and the second—the other side of the coin—is to give a strong signal to management that they must do something to deliver better service, which is what the charter is all about.

Market Testing

Mr. Nigel Evans: To ask the Chancellor of the Duchy of Lancaster how much Government activity will be market tested in 1993–94; and what was the size of the 1991–92 programme.

Mr. David Davis: We plan to subject central Government activities costing more than £800 million to competition in the 12 months to 30 September 1994. This is a 30-fold increase over the 1991–92 outturn of just under £25 million.

Mr. Evans: I am extremely grateful for that reply. Will my hon. Friend encourage all Government Departments to examine further ways in which they could increase market testing and embrace it vigorously? As he has already mentioned the Inland Revenue, will he welcome its decision to enter negotiations with a private company to introduce market testing in its strategic information and technical services?

Mr. Davis: I welcome that company, as I have already said. The programme has delivered virtues and benefits throughout Government services and does so not only in terms of the direct public services that we have already mentioned—it delivers the capacity to give wider service, including perhaps more defence, which was discussed at the weekend.
One example of the improvement in efficiency that has arisen in Departments, even though it has not yet got as far as market testing, was the maintenance of the main battle tank. It used to take 34 weeks to maintain but now takes only 19. That means that there is a cost saving and a benefit to the people who use the main battle tank.

Dr. Howells: It is a pity that the Minister did not also quote the sums which, between 1991 and now, each of the Departments that had pushed out its charters and its market tests had spent on management consultants. Before he does any more of that, will he speak to the Secretary of State for Wales, who reportedly called in the heads of the quangos and the next steps agencies in Wales and warned them that they were to cut off the gravy train to the management consultants who had been doing very well out of that exercise?

Mr. Davis: Perhaps the hon. Gentleman should address the latter part of his question to the Secretary of State for

Wales. In my Department the costs that were incurred at the beginning of the market testing programme were matched 4·4 times over by the savings that arose. That has been the experience right across the board—four times or better.

Sir Giles Shaw: Does my hon. Friend believe that in setting priorities for market testing in Government activity he should use some type of scientific endeavour? Would he consider using technology foresight, for example, as a method of choosing the areas of Government activity in which he wants market testing to occur?

Mr. Davis: My hon. Friend's suggestion is ingenious. In the process of market testing we discuss with the Departments the areas in which they think that they will obtain the most value for money and the best service provision improvement. That has turned out so far to be a very effective process.

Mr. Flynn: Does the Minister recall telling me on 25 October that the First Division Association of civil servants was supportive of market testing? Subsequently he received a letter from the secretary of the association, saying that she could not conceive how he could possibly have reached that conclusion because of the letters that she sent to him before and after his answer. Will he now honestly admit, without quoting selectively from those letters, that he has seriously inadvertently misled the House and will he now apologise, because the First Division Association of civil servants very much opposes the present system of market testing?

Mr. Davis: Perhaps the hon. Gentleman would like to hear what I have already written to him and told him. I was speaking from memory last time, but I am now speaking from the text. This is Elizabeth Symons, writing to my right hon. Friend the Chancellor of the Duchy of Lancaster on 26 May:
Perhaps I should make it clear from the beginning that the FDA does not oppose the principle of market testing; indeed there is much in your recently published pamphlet devoted to the subject with which our members would agree. The public sector cannot be immune from reform, and should not hold itself aloof from new management methods, where such methods can be shown to be delivering better standards, and better value for money for service users and for all tax payers.
To put the matter absolutely in context, Elizabeth Symons went on to say that she thought that the Government were not taking sufficiently seriously some items, such as confidentiality and several other issues. We take all those issues absolutely seriously and will continue to do so when we make this programme work through the next several years.

Hong Kong

The Secretary of State for Foreign and Commonwealth Affairs (Mr. Douglas Hurd): I will, with permission, make a statement about Hong Kong.
We have an important job to do in the remaining years of British sovereignty in Hong Kong. We intend to carry out those responsibilities, with the support of the House. Part of our task will be to make arrangements for the elections to the district boards, the municipal councils and the Legislative Council in 1994 and 1995.
There is no argument between Britain and China over the principle that Hong Kong's democratic institutions should continue to develop. That is set out in the Sino-British Joint Declaration. It provides that, by 1 July 1997, Hong Kong's legislature will be "constituted by elections". China's Basic Law for Hong Kong after that date spells out more fully the process of political development.
The issue is how those principles should be turned into practical arrangements. The proposals which the Governor put forward in October 1992, with our full support, were carefully framed to be consistent with the Chinese Basic Law. We have all along wished to proceed in agreement with China, in order to assure continuity. That is why we have put so much effort since April into the talks with China.
The talks have been concerned with complex electoral issues, and I apologise for the complexity of this statement. But the underlying question is simple: will we bequeath to Hong Kong an open and democratic system offering the electorate a genuine choice, or will we settle for a system based on small electorates open to manipulation and corruption?
The answer to this question affects the character of Hong Kong. As many right hon. and hon. Members know, Hong Kong owes its success in large measure to the rule of law, supported by a clean and efficient administration. If that asset is to be preserved in modern circumstances, the territory needs an elected and credible legislature which can stand up for its way of life.
That is why we believe that elections held under British administration in Hong Kong need to be fair and open, and acceptable to the people of Hong Kong. On that basis, we have made a concerted effort through 17 rounds of talks to reach agreement with China. I have discussed matters twice with the Chinese Foreign Minister during this period. The Prime Minister sent a message to the Chinese Premier. We have offered to make important moves to accommodate Chinese views, without compromising our essential requirements, as part of an acceptable overall agreement.
We made it plain from the outset that the talks cannot continue indefinitely and that it must be for the Legislative Council to consider and pass the necessary legislation. This will take time. Some 48 constitutional and electoral instruments in Hong Kong are affected and may need amendment. All the primary legislation needs to be in place by July 1994. Some of the more important measures need to be on the statute book by February.
When time began to press, we therefore explored fully the possibility of an interim agreement, which would

enable us to get on with legislation on the more urgent issues, and gain a little more time to resolve the remainder with the Chinese.
I explained to the Chinese Foreign Minister in New York on 1 October that this aim would not be achieved by an interim package limited only to the elections in 1994 —the district board and municipal council elections. To deal with all the more urgent issues, an interim package needs to include the voting age and the voting method for all three sets of elections, and the abolition of appointed membership in the district boards and municipal councils.
The Chinese side evidently had no difficulty of principle with an interim package covering some of the 1995 LegCo issues. The Chinese accepted our proposal that the voting age should be lowered to 18 for all three elections. They also seem to have had no difficulty of principle with our proposal that the voting method should be single seat, single vote. They accepted that this should apply to the district board and municipal council elections. But they refused to accept as part of this possible interim package that the single seat, single vote method should apply to the Legislative Council.
We and the Governor believe that there are compelling reasons for including this proposal on the voting method in the interim package. In practical terms, it would otherwise be necessary to legislate twice on the voting system, using up legislative time which will be in short supply next year.
The single seat, single vote system enjoys widespread support in the Legislative Council. If we had accepted the Chinese position and introduced legislation to apply this voting method to the district boards and municipal councils only, the council might have extended the measure to apply to the elections to its own body, since we know that it is in favour of that. That would have led straight back to further difficulties with the Chinese Government. We would not have saved time: we would have wasted it.
Despite our best efforts, it has not been possible to reach agreement on this issue. The question of abolishing appointed members also remains unsolved. Time has now run out for pursuing these points. The Governor has therefore announced that he will publish draft legislation on the 10th of this month, for introduction on the 15th of this month. That will allow work to begin straight away in a Bills Committee of the Legislative Council.
The proposals on which the Governor intends to legislate this month are largely uncontroversial in Hong Kong. We had thought that they were uncontroversial with China. On a number of them, it was possible to reach a common view in the talks. In those cases, the legislation will reflect that. The Governor is not at this stage legislating on the main issues which remain in dispute—the functional constituencies, the composition of the election committee, and objective criteria for the through train.
We are not breaking off the talks: we have proposed a further round in December to pursue agreement on remaining issues. We are prepared to work seriously and constructively to that end. We strongly hope that the talks will continue in spite of what has been said, because Britain and China have to carry out what they agreed—I repeat, what they agreed—which is to preserve Hong Kong's way of life and success while transferring sovereignty. We all know that that is a unique task and one that we have not had to do in this form before. It is also difficult, and it is best carried out together.
The Joint Declaration makes clear the fundamental British responsibility up to the middle of 1997. We and the Governor are committed to working with China in the interests of Hong Kong, and we look for corresponding commitment from their side.

Dr. John Cunningham: The House will welcome the opportunity to question the Home Secretary on his important and rather serious statement about developments over Hong Kong. I reiterate that we have always supported these proposals. Modest though they are, we have given them a fair wind, because, I guess like most democrats, we wanted, albeit a little late in the day, a widening of the franchise and a broadening of the democratic process in Hong Kong.
Given that the Joint Declaration accepts the evolution of democracy and that it is enshrined in the Basic Law enacted by the People's Republic of China, the central question in response to the right hon. Gentleman's statement is, what on earth has gone wrong?
There is quite clearly a fundamental divide between the Government of the People's Republic of China and Her Majesty's Government. I accept what the right hon. Gentleman says, that the dispute is about the detailed implementation of procedures for elections. Everyone accepts that whatever proposals emerge must ensure fair and open elections that are acceptable to the people of Hong Kong; otherwise, there would be no point in going through the process.
Who was suggesting that any counter-proposals from China are not intended to be fair, open and acceptable? Is that the implication of the right hon. Gentleman's statement? Perhaps I had better reiterate something else. I do not have any particularly fond feelings for the perpetrators of the Tiananmen square massacre or other details of human and democratic rights in the People's Republic of China, but it is not conciliatory or constructive to imply, as the right hon. Gentleman apparently did in his statement, that the Chinese are suggesting alternatives that are open to abuse and corruption. If that is not the right hon. Gentleman's intention, he should make that clear to the House.
The statement has serious implications for relations between Her Majesty's Government and that of the People's Republic of China, but they are even more serious for the future of Hong Kong's people. If it is impossible to reach agreement on the simpler details, what real hope can there be for a deal on the more complex issues that have yet to be discussed and negotiated? It seems as though the through train of democratic reform has just come off the rails in these talks.
Why has not it been possible to persuade the Government of the People's Republic of China to accept even these simplest of proposals? There is a great lacuna in the right hon. Gentleman's statement, because nowhere does it say why there has been any disagreement. If it is simply intransigence and obstinacy on the part of the People's Republic, the Home Secretary should say so, especially in view of Mr. Deng Xiaoping's statement in the early 1980s:
We hope that the Chinese and British Governments will engage in friendly consultations on this question, and we shall be glad to listen to the suggestions put forward by the British Government.
If that remains the position of the Government of the People's Republic of China, we need to know more about why no progress has been made. Is it, as Sir Percy Cradock

suggests, that these discussions got off on the wrong foot in October 1992, and that Her Majesty's Government have been unable to recover the situation since then?
For example, what will the right hon. Gentleman do if, as a result of unilateral action on legislation—I understand the time scale and accept that the Governor cannot wait indefinitely—the Chinese Government refuse to be involved in any further discussions? Can the right hon. Gentleman assure the House that pressing ahead with the proposals will not jeopardise developments such as the new Hong Kong airport and other joint projects?
Is it not clear that China intends to set these proposals aside in 1997 and introduce its own plans? Is it not also clear that, without a substantial recovery of trust and further serious negotiations which end in agreement, there is nothing that Her Majesty's Government would be able to do about that?

Mr. Hurd: The bulk of the right hon. Gentleman's questions should be addressed to the Government in Peking. My responsibility to the House is to explain and justify what the Government and the Governor are proposing. It is for the Chinese Government to explain why, if our proposals were not reasonable—as I believe they are—they have not so far been accepted. In the early autumn of last year, I informed the Chinese Foreign Minister of what the Governor of Hong Kong proposed to say. Weeks passed, with no Chinese reaction except a request that he should not say it. He said it, and then there was a Chinese protest. After several months, the Chinese began the discussions which took the course that I have described.
Issues of very substantial importance remain unresolved. We want the electorates for the functional constituencies to expand. We want the composition of the election committee to be in itself elected. We want an objective-criteria through train, so that the people elected in 1995 know what they have to do—for example, taking an oath to the new special administrative region—in order to stay on the council after the transfer of sovereignty.
Those are all outstanding issues, and on all of them we have put forward proposals that we think are modest and reasonable, as the right hon. Gentleman has said. What is immediately in question are not those matters but matters that, until recently, we thought were not controversial.
The right hon. Gentleman talked in very gloomy terms, but he will have noticed the very robust confidence of Hong Kong in recent days and weeks, which is a change from when I first began to deal with these matters some years ago. The people of Hong Kong know what is going on, because Hong Kong is not a place where matters are long or successfully concealed, but they have not allowed it to deter the colony from going ahead. That is a change from the days when the slightest rumblings of differences between Britain and China caused a great deal of gloom and despondency in Hong Kong. It is very much a change for the better.
The right hon. Gentleman's basic point is right. Some people—for example, Sir Percy Cradock in his article yesterday—talked as if we were running up against a Chinese reluctance to contemplate future democracy. The scheme is that, in 1999, two years after the transfer of sovereignty, the number of directly elected members should rise from 18 to 24 and then to 30 in the year 2003. The functional constituencies should rise to 30, and


members of the LegCo appointed by the Governor should disappear altogether. Whose scheme is that? That is in the Basic Law.
We are not talking about a difference of principle; we are talking about the way in which to move towards implementing the principles in the Chinese Basic Law.

Mr. David Howell: Does my right hon. Friend agree that the erosion of the development of a trustworthy system of democracy in Hong Kong will also erode the whole basis of law—including law affecting commerce and business—on which Hong Kong's prosperity has been built, and will continue to be built? Will not that be greatly to the disadvantage of the business community, and, indeed, that of Beijing?
Does my right hon. Friend accept that there is no suggestion in any of the evidence that we have been able to muster in the Select Committee on Foreign Affairs—evidence from independent and expert witnesses—that any of Governor Patten's reform proposals have in any way violated the Joint Declaration, the Basic Law or the exchange of letters between himself and the Chinese Foreign Minister?
In the light of that, will my right hon. Friend accept that he has my full support in making every effort first to explain to Beijing—with the backing of many others in Asia—that it is vital in the long term for the reforms to proceed steadily, and secondly to ensure that everything possible is done to maintain friendly talks and arrangements with Beijing? It must be brought home to Beijing that its benefit, and that of Hong Kong, will be at stake if the talks break down completely, and obstruction replaces consultation and co-operation.

Mr. Hurd: I am grateful to my right hon. Friend. His Committee is carrying out a thorough investigation, and we look forward very much to its report. I am also grateful for the issue today of what I suppose is in part an interim report.
My right hon. Friend has put it exactly right. It is in the interests of China, Britain and, above all, Hong Kong for Hong Kong to retain its character—which, as all who visit it will know, is capitalist. Recently—in the past decade or so—there has been an increasing and justified demand in Hong Kong for democratic institutions: that, too, is now part of its character. Mr. Deng Xiaoping—who has already been quoted—is, after all, the author of the concept of two systems in one country. It is in the interests of all concerned that that concept exists not as just a phrase, but as a reality.

Sir David Steel: Does the Foreign Secretary accept that the Governor and indeed Her Majesty's Government have been reasonable with the Government of China, almost to the point of being unreasonable with the people of Hong Kong? As one who knows China, does the right hon. Gentleman accept that it too has changed dramatically over the past decade? It is no longer a political or an economic monolith; the provinces have all developed in different ways.
What can the right hon. Gentleman do to reassure the Chinese that the same would be true of Hong Kong, and that the idea that it would be used as a base for undermining the system of government in Beijing is an entirely unreal fear?
Does the Foreign Secretary also accept that, if we compromise too much on elections to the legislature, we shall undermine the very foundation of the rule of law in Hong Kong?

Mr. Hurd: I agree with those points. I think it wise for the Governor to continue to operate and to make proposals to the Legislative Council—which will make decisions accordingly—within the scope of the Chinese Basic Law. As the right hon. Gentleman says, China is changing very fast. No one can say quite how far those changes will go between now and midnight on 30 June 1997, and it is therefore right to maintain the line that we have been taking—the principle of "two systems, one country".
That implies that, if the Chinese wish to intend to continue on a communist line inside the People's Republic, that is a matter for them and not for Hong Kong—and equally that, within Chinese sovereignty, Hong Kong should be free to retain its own character.

Mr. Roger Sims: Is it not the case that, although the holding of the elections is contained in the Sino-British agreement, the form in which they should be held is not detailed? That being the case, surely doing nothing is not an option. It is incumbent on the Government of Hong Kong to introduce some measures to explain how the elections shall be held. The Governor can hardly be accused of being precipitate, after waiting 12 months and engaging in 17 rounds of talks. Will my right hon. Friend assure him that he will have the support of many hon. Members in proceeding with his very modest proposals?

Mr. Hurd: I am grateful to my hon. Friend. I think that that is exactly right. We have not gone into some stampede, and certainly have not tried to bulldoze proposals through. The original proposals were modest and, as my right hon. Friend the Member for Guildford (Mr. Howell) said, were in line with the Basic Law, with the correspondence that I had with the Chinese in 1990 and with the Joint Declaration.
We have discussed them at great length with the Chinese Government, and hope to discuss them further concerning the main issues that are still in dispute. There comes a time when elections have to be held and, as the House knows, if they have to be held, electoral law must be passed.

Dr. Jeremy Bray: Will the Foreign Secretary agree that, after the Tiananmen square incident and the response of the people of Hong Kong and the rest of the world to those events, it was necessary to rebuild the confidence of the Hong Kong people in their future in China?
Does he agree that the October 1992 proposals were consistent with that, and that the subsequent developments and the improved atmosphere in China in its attitude to Hong Kong in comparison with even a year ago is such that we can look forward to a continuing, smooth transition? Does he agree that the Governor should have the support of all hon. Members in making the wishes of the people of Hong Kong paramount in the context of the debate on the Joint Declaration?

Mr. Hurd: I think that, over the next months, we shall have some bumping and grinding on that issue, such as we


have today. However, I am optimistic about the remaining period of British sovereignty over the following three and a half years.

Mr. Edward Garnier: Would my right hon. Friend accept from me, as a recent visitor to Hong Kong, that the economy of the colony is thriving, not only internally but due to the great amount of direct investment in China? Will he therefore impress on the Government of China that it is contrary to their own interests to stifle the democratic and thus entrepreneurial spirit of the colony, as democratically expressed through the Legislative Council; and will he encourage the Governor to continue the work that he is doing?

Mr. Hurd: I will indeed do that. The Chinese Government, the Government of the People's Republic, will make up their own mind about their own interests, but the evidence pours in all the time that the relationship between Hong Kong and China, instead of weakening, is developing fast in the economic field. That development enriches both sides. Hong Kong is growing as an asset, but the growth of that asset depends on it being an effective channel, an outlet, for China to the outside world. That in turn depends on retaining, ensuring, the present characteristics of Hong Kong, which are unique in the world and make it, in my view, the most exciting place that I visit.

Mr. James Molyneaux: Is the Foreign Secretary aware that there will be widespread support for his declaration that the Government stand in defence of democratic principles, and that they wish those principles to be pressed through the ballot box, if necessary with the backing of international opinion, to ensure that the will of the greater number prevails?

Mr. Hurd: That is an admirable general principle, which the right hon. Gentleman and I had an opportunity yesterday to express in another context. I am glad that we agree as widely on that issue as we did yesterday morning.

Sir Peter Emery: Does my right hon. Friend realise that there is not only support in the House for his statement, but considerable rejoicing that the Government and the Governor are taking these steps, because there appears to be a degree of intransigence—not the most diplomatic term, but one that many of us may use—on the part of the Chinese Government?
There appear to be delaying tactics which could continue for a long time and which would work against the best interests of the people living in Hong Kong. If that intransigence continues, will my right hon. Friend ensure that it is given a great deal of publicity? The rest of the world needs to know exactly what we are doing, and what the Chinese are trying to do.

Mr. Hurd: I am grateful to my right hon. Friend. There is always a difficulty, when one hopes to continue discussions with somebody, deciding how much one says about the discussions that have taken place already. We have to strike that balance. I believe that the reason why the Governor and his proposals continue to enjoy such wide support in Hong Kong is that he is no slouch in explaining them in terms that people in Hong Kong readily understand and accept.

Mr. Gerald Kaufman: Does the right hon. Gentleman accept that what worries the Chinese

Government is not that there will be capitalism in Hong Kong, but that there could be democracy in Hong Kong? Does he accept that, although the House should accept and support the Patten package, it is a watered-down version of the consensus of the Office of the Members of the Legislative and Executive Councils? After 14 months of negotiations, we shall have a watered-down version of the watered-down version.
Will he therefore press ahead with what he has announced today? Will he press ahead as soon as possible with the rest of the Patten package? With only three and a half years to go, unless action is taken quickly, it will not be worth taking at all.

Mr. Hurd: Action has to be taken in time to provide for greater democracy in 1995. The Governor will work out —he has not yet decided it—exactly what package he will put in terms of the main proposals for the elections in 1995 to the Legislative Council. We obviously hope, as I said, that we shall be able to resume discussions with the Chinese Government on some of the outstanding issues. However, that is not sure at present.

Mr. Michael Jopling: Will the Foreign Secretary understand that the modest proposals he has made today will have wide support?
To return to the question of what has gone wrong, which was asked by the right hon. Member for Copeland (Dr. Cunningham), does the Foreign Secretary recall the report by the Foreign Affairs Committee four years ago? The Committee reported having discussions on that very issue in Beijing. The Chinese officials concerned emphasised that the timetable for the introduction of representative government was a matter for Hong Kong.
Will my right hon. Friend continue to press on the Chinese the fact that many people here cannot understand why it was right then to move more quickly towards democracy, with the support of the Chinese Administration, whereas now, for some reason, the position seems to have changed?

Mr. Hurd: That is a fair question. The agreement that I made with the Chinese in 1990 for the elections in 1991 was for 18 directly elected members out of 60. That is the position in LegCo today. However, the Basic Law proposes to move that figure up to 30 by 2003 and to 24 by 1999. The principle is there is Chinese law—in the Basic Law—which was passed after my right hon. Friend first went to Peking. The question why, in those circumstances, the Chinese Government are not willing to accept the Governor's modest proposals is one to put to them.

Dr. John Marek: Does the Foreign Secretary accept my support for his modest proposals? I believe that the overwhelming majority of hon. Members of all parties support his proposals. Will he pass that support on to the Governor and to LegCo?
Can the Foreign Secretary give an unequivocal assurance to the House? If he is to hold his head up after 1997 as having done his duty for Hong Kong, and if all of us, as Members of Parliament, are to hold our heads up, he and the Governor must not settle for one iota less than a system for the election committee and for the functional constituencies which is democratic, open and incapable of manipulation.

Mr. Hurd: In the end, it will not be for me or for the Governor to decide; the arrangements and decisions on the


points that the hon. Gentleman mentioned will be for the Legislative Council. That is a point that the Chinese find it hard to accept, but it is a fact that we constantly press on them.

Dr. Liam Fox: Does my right hon. Friend accept that, if the Chinese Government have the best interests of the people of Hong Kong at heart, the best thing they can do is give the go-ahead for the airport and other projects as soon as possible?

Mr. Hurd: I agree with my hon. Friend. The Governor of Hong Kong is pressing ahead with the airport, as anyone who flies over Hong Kong and over Lan Tao island can see. However, it is important that the remaining part of the project receives the Chinese consent which is needed. That is another practical example of an asset which is being created day by day, both on the ground and in the sea. It is powerfully in the interests of China that that should be successfully and rapidly completed.

Mr. Dennis Skinner: To sum it up, could it not be argued that there are all sorts of democracies, which come in all shapes and sizes? When the right hon. Gentleman is negotiating with the Chinese Government, will he perhaps consider that many Opposition Members would like to see a system evolve based on the House of Commons and direct elections? Do not the Chinese Government perhaps want a system based on the House of Lords? As the British Government support the House of Lords, might they not put themselves in a dodgy position?

Mr. Hurd: The hon. Gentleman has a distinctive view of the House of Lords, which used to be shared widely in the country. However, his view is not shared any more, and the hon. Gentleman is being a little old-fashioned on the matter. I have not yet heard a proposal based on the House of Lords from the Chinese Foreign Minister or from the Chinese Premier. Were we to do so, we would be intrigued rather than persuaded.

Mr. Anthony Coombs: Does my right hon. Friend agree that the best way to safeguard the human and constitutional rights of the people of Hong Kong under Chinese rule is to ensure that as many as possible of the democratic proposals agreed under the Joint Declaration of Basic Law are implemented beforehand? Given the somewhat questionable record of the Chinese Government in human rights, both in China and in Tibet, is not the Governor wise indeed to push ahead with democratic proposals to ensure that as many proposals as possible are implemented before the changeover takes place?

Mr. Hurd: The Hong Kong Bill of Rights gives effect in local to the provisions in the international covenant on civil and political rights as applied to Hong Kong. The Joint Declaration—that is to say, the declaration which we made with China—provides that the international covenant will continue to apply to Hong Kong after 1997. My hon. Friend is right about the importance of that.

Mr. Mark Fisher: If we are serious about helping the development of democracy in Hong Kong, does the Foreign Secretary accept that it is not just a matter of electoral mechanics, important though those are, such as the age of voting or the number of elected

members? Are not open government and the freedom of information from censorship key elements in underpinning democracy?
Will the Government encourage Governor Patten to look at censorship and self-censorship of the Hong Kong media, and will they give support to the freedom of information Bill which will come before LegCo next spring? If not, and if the Government are solely concerned with negotiating on the mechanics of democracy, will not their rhetorical support for the widening of democracy be somewhat hollow, as it is not just a matter of electoral mechanics?

Mr. Hurd: No, indeed it is not. I do not know the details of the Bill which the hon. Gentleman mentioned, but I will certainly pass on the message to the Governor. The hon. Gentleman is right to say that it is not a mechanical matter. We have seen relatively recently the growth of a democratic spirit. Until recently, the pressure for that spirit did not exist. However, there is that pressure now. We all have ideas about how that spirit arose and why it is now so strong, but it is there. Therefore, it is not a matter of mechanics. The mechanics are finding the machinery through which that spirit can find expression.

Mr. Robert Banks: Does my right hon. Friend agree that it is not only in the interests of China to see the continuing success and prosperity of Hong Kong for the value which Hong Kong can bring to China, but also for the international community to see that an agreement can be reached, so that trade can be opened up with China and that future British investments in China will go ahead? That is something of great value. Does my right hon. Friend agree that it is vital that we maintain a working dialogue throughout all the difficulties, small and large, which may occur in future negotiations?

Mr. Hurd: I agree with my hon. Friend. The consensus may be broken immediately, but it is notable that every single right hon. and hon. Member on both sides of the House—even, I think, the idiosyncratic hon. Member for Bolsover (Mr. Skinner)—has supported what the Government are attempting to do and the way in which we are seeking to handle this matter. There may be criticisms of the way in which the matter has been handled in the past, but, as regards the path that we are now on, there has been unanimous support, and that is extremely helpful to Hong Kong.

Mr. Chris Mullin: Welcome though the Foreign Secretary's decision to introduce some form of limited democracy in Hong Kong may be, does the right hon. Gentleman not agree that we suffer from something of a credibility problem in that regard? I say that because we have had 100 or so years to sort out democracy: if it is such a good idea, we could presumably have done so some years ago. Now that we are to stand up to the Chinese on this issue, will we be adopting a less supine attitude to one or two other important human rights issues in China, particularly in relation to Tibet?

Mr. Hurd: I do not think that our attitude to Tibet has been in the least bit supine. The way in which we have taken the matter up and our discussions with the Dalai Lama prove the reverse. I think that I answered the hon. Gentleman in one of my earlier answers. I first went to Hong Kong in 1954. No one who knew the colony then


—or for many years thereafter—would have sensed a pressure for democratic institutions. Everybody knew that Hong Kong was in a unique position.
That has changed, however. It has changed since 1989 in particular, but it had begun to change before that. We are therefore responding, as the colonial power, to a change in the feeling and wishes of people in Hong Kong. That feeling and those wishes are now part of the character of Hong Kong, which has to be respected, and is respected, under the Joint Declaration and, indeed, the Basic Law.

Mr. David Harris: May I revert to the question posed by the hon. Member for Copeland (Dr. Cunningham), who spoke for the Opposition, about what has gone wrong? When members of the Select Committee on Foreign Affairs visited Beijing a few weeks ago, we unfortunately found a mood of complete intransigence on these issues. I suggest that that is what has gone wrong.
Does my right hon. Friend share my view that it is important that the House should have an early opportunity to express in a formal way what I believe is our overwhelming support for the Governor of Hong Kong —particularly in the light of what I fear are considerable attempts among some business men to undermine his position in Hong Kong itself?

Mr. Hurd: I note my hon. Friend's point, and will draw it to the attention of the House authorities; it may be a matter for the usual channels.
May I also say in passing that I hope that the Select Committee will not include among its recommendations the use of the word "Beijing". I know that it is a matter of personal taste, but I do not talk about "Roma", Bruxelles" or "Moskva", and I do not see any reason to abandon a perfectly reputable English word for a very distinguished Chinese city.

Mr. Harry Barnes: Is not the beauty of democracy the fact that it is open-ended and can encompass moves to the left or the right in different circumstances? Does the Foreign Secretary agree that democracy in Hong Kong should not be regarded as a defence of capitalist arrangements, as those arrangements have often been defended by methods that are far from democratic?

Mr. Hurd: I think that even the hon. Gentleman would agree that, in most societies, there is a link—although not an absolute link—between the free market and free political institutions. What has happened is that, after many years of practising with unique success the principles of the free market, Hong Kong has in recent years developed an appetite—a pressure—for free political institutions.

Mr. Peter Luff: Is my right hon. Friend aware that, during my recent visit to Hong Kong, I encountered precisely that growing confidence and self-assertiveness of which he spoke, and also a great groundswell of support for the Governor's general approach to all the affairs of the colony, and specifically to democracy for the colony? Does my right hon. Friend not think that one of the most effective ways in which Peking could demonstrate that it has the best interests of Hong Kong at heart is to enable more rapid progress to be made with the negotiations surrounding the work of the Joint Liaison Group?

Mr. Hurd: In addition to the constitutional talks that I have described to the House, there is, as my hon. Friend says, the work of the Joint Liaison Group and the airport committee. The JLG is trying to carry through a whole series of changes, many of them completely technical and legal—legalistic, even—to enable the law of Hong Kong to pass without difficulty into the period following the change of sovereignty. It is important for things such as air services out of Hong Kong that that technical legal work should continue, and, indeed, accelerate.

Mr. David Winnick: Although I have only contempt for the manner in which China treats its citizens—the complete denial of all democratic rights—is the Secretary of State aware that we should be careful not to adopt a "holier than thou" attitude, and that some sort of apology is due to the people of Hong Kong, because previous Governments, including this Government in the past 14 years, did not take steps to establish the form of democracy that we are now talking about, and are right to talk about? If those democratic steps had been taken in the past, China would have little to criticise.

Mr. Hurd: I do not agree with the hon. Gentleman. I have dealt with that point twice already. It is not historically correct.

Dr. Robert Spink: Will my right hon. Friend acknowledge the understandable concerns of the business community in Hong Kong? Notwithstanding that, does he agree that we should give priority to protecting those institutions that have made Hong Kong special, and in particular to the rule of law?

Mr. Hurd: It is right that someone in these exchanges should mention the anxieties of the business community, and my hon. Friend is quite right to do so. He is right also to put it in context and draw the conclusion that he has.

Mr. Ian Taylor: My right hon. Friend reminded the House, through his liking for the word "Peking", that he was once based there. He knows that the Chinese will not respect us if we do not fulfil our commitments under the agreements with China to hand over in 1997 with still strong economic and social stability. It must be the Government's judgment, with the Governor, how that can best be fulfilled. The previous Foreign Affairs Select Committee, of which I was a member, wanted us to go faster on democracy so that the Governor's current proposals should have the full and whole-hearted support of the House, and the Chinese should understand why.

Mr. Hurd: My hon. Friend is right in his history, and I agree with his latter point.

Mr. Nigel Waterson: Does my right hon. Friend think that it is a question of the Chinese not understanding, or not wanting to understand, that greater democracy is an essential guarantee of the British legacy to the Chinese after 1997, particularly the rule of law, the efficient and relatively corruption-free administration, and the free enterprise system that prevails in that colony?

Mr. Hurd: I agree with my hon. Friend. In trying to answer the questions that have come from many parts of the House about the reasons for the Chinese attitude, in fairness one must say that they feel a good deal of suspicion that, with its institutions, Hong Kong could


become a centre for what they would regard as subversion, of advocating violent change in China. They feel a certain suspicion of the British Government and of the Governor.
It must be our job and the job of the people in Hong Kong over the next three and a half years to get those suspicions put on one side and pushed into the history books, because the present interests of Britain, Hong Kong and China in all those matters coincide to a remarkable extent.

Orders of the Day — WAYS AND MEANS

Order read for resuming adjourned debate on Question [30 November].

Orders of the Day — AMENDMENT OF THE LAW

Motion made, and Question proposed,
That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

(a) for zero-rating or exempting any supply, acquisition or importation:
(b) for refunding any amount of tax;
(c) for varying the rate of that tax otherwise than in relation to all supplies, acquisitions and importations; or
(d) for relief other than relief applying to goods of whatever description or services of whatever description.—[Mr. Kenneth Clarke.]

Question again proposed.

Orders of the Day — Budget Resolutions and Economic Situation

Madam Speaker: I must inform the House that I have seen fit to limit speeches between the hours of 7 and 9 pm to 10 minutes.

The Secretary of State for Education (Mr. John Patten): The whole House will agree that my right hon. and learned Friend the Chancellor presented a skilful and imaginative Budget last week. He tackled the deficit decisively and set public borrowing on a downward path with the robust and penetrating help of my right hon. Friend the Chief Secretary. He cut no less than £10 billion from previous spending plans, with tough measures to reduce the cost of government and bring spending on social security under control. His tax increases are carefully targeted to protect incentives, as the House would want, and help the supply side of the economy. The Budget has new measures to help businesses and jobs.
The Budget creates the right climate for business and for investors. It will foster the economic recovery that is clearly gathering momentum. [Laughter.] Already unemployment is falling and output is expanding—a laughing matter to the Labour Front Bench. Industry is more competitive and exports are at record levels. Our inflation and interest rates are among the lowest in Europe. This year and next year, we should have faster growth than any of our major partners on the continent.
As part of that picture, education will be critical in the next three years. That is why I am all the more sorry that the Labour party did not think the hon. Member for Dewsbury (Mrs. Taylor) sufficiently weighty to field for a debate such as this. Quite properly, when my right hon. Friend the Secretary of State for Employment spoke in a similar debate last Friday, the shadow spokesman on employment also spoke. It is unusual in House of Commons practice for an Opposition spokesman not to take part in a debate, but not surprising considering the shambles to which the hon. Member for Dewsbury has reduced Labour's education policy after only 18 months in the job.
Let us take higher education policy. Had the hon. Lady been here to speak, she might have been able to tell us a bit more about Labour's "Now you see it, now you don't" policy on higher education. After she became Front-Bench spokesman on education, she was telling anyone who would listen that she would have the guts to tackle the issues and that Labour would produce a green paper with radical proposals on the future funding of higher education.
The hon. Lady instructed the hon. Member for Birmingham, Perry Barr (Mr. Rooker)—unfortunately, he is not here—who was then the Labour party spokeman on higher education, to go away and draft a paper on higher education. Following her instructions, that is precisely what he did. The paper was prepared and copies were sent, as part of a pitch-rolling exercise, to a number of journalists. Vice-chancellors were briefed and sent a copy of the paper. Yet, at the eleventh hour, and on the specific orders of the leader of the Labour party, the green paper was withdrawn. As the author later conceded, it did not even contain any concrete proposals, yet it was obviously thought that to commit itself to any form of action was too risky for a party that had been in opposition for only 14 years.
As some hon. Members may recall, a copy of the paper fell into my hands. In the interests of open government, I published the green paper during a press conference. It stated piously:
Labour will not simply stand on the side … We will not simply wring our hands. This would not be a serious response from a mature political party".
I agree: it would not. So why is Labour still standing on the side and wringing its hands? Could it be because of some of the barmy ideas in its green paper—ideas such as a new corporate levy on business to pay for higher education? As my right hon. Friend the Secretary of State for Employment never fails to point out about Labour's training levy, that would be just another job-destroying tax.
What was the reward of the hon. Member for Perry Barr for producing that radical document? He told us all about it in an article in The Times on 8 November last month, in which he said:
unfortunately, I wrote myself off the front bench".
In other words, he was sacked. He was forced to fall on his sword for following the instructions of the principal Front-Bench spokesman. No wonder he went on to write in exasperated terms:
One of the greatest dangers facing Labour after such a long period outside office is that of becoming a professional Opposition. That is, a party that opposes the government, but never risks upsetting the vested interests … a responsible political party cannot hide its head in the sand".
I agree with the hon. Gentleman, although I have some difficulty with the concept of Labour "becoming a professional Opposition". As my hon. Friends on the Treasury Bench will no doubt agree, we see Labour remaining an amateur Opposition.
Winding up the debate in the House on the Loyal Address a week or so ago, I asked the Front-Bench spokesman on home affairs, the ever Peter Panish hon. Member for Sedgefield (Mr. Blair), "Where's the beef?" I was asking that about Labour's policy on law and order, but when it comes to education, I can equally ask, "Where's the bottle?" Now, the hon. Member for Glasgow, Garscadden (Mr. Dewar) has suffered the ultimate indignity of being dragged off the bench and substituted for the hon. Member for Dewsbury. I ask the hon. Gentleman, where is the intellectual honesty? I hope

that it will be displayed this afternoon, and that the hon. Gentleman will welcome the Budget specifically and in terms—particularly in regard to the help given to all pensioners paying value added tax on domestic fuel.
Not long ago, the hon. Gentleman was interviewed in another article. I love it when Opposition Members write newspaper articles—whether it is the hon. Member for Perry Barr or the hon. Member for Garscadden—because they are always most revealing. The hon. Member for Garscadden was revealing in his article in The People on 21 November, when he said of the VAT issue that
the Government has to add something on to take account of that
He went on to say that we
could do it with an extra 50p on pensions".
That is exactly what was done by my right hon. and learned Friend the Chancellor.

Mr. Donald Dewar: rose—

Mr. Patten: I will give way with pleasure to the hon. Gentleman, because I am sure that he will congratulate my right hon. and learned Friend.

Mr. Dewar: I am delighted that the right hon. Gentleman raised that issue because it allows me to put the record straight—as I have already done in letters to the Prime Minister, Chancellor of the Exchequer and Secretary of State for Social Security. I make it clear that I did not write an article but was quoted in a way that did not represent my views. At no time have I said or suggested that 50p would be adequate. How could I, when—to take one example—a married couple with two children under I1 will receive only 45p as a result of the so-called compensation package?
If the Secretary of State wants the truth, and as he seems to be so keen on reading The People, no doubt he read in that newspaper on Sunday an excellent article by the interviewer who spoke to me for the article that is at the centre of this argument, who described the use made of the quote as "a load of cobblers".

Mr. Patten: It is wonderful to see the hon. Gentleman wriggle on the hook. He had four or five days to think about that matter and has made a pretty pathetic response in trying to get away from his quoted remarks in The People. If the hon. Gentleman does not want to eat his words, he should take his complaint to the Press Complaints Commission. Otherwise, my right hon. and learned Friend, who used to be an advocate at the criminal Bar, will have him bang to rights.
My right hon. and learned Friend has provided a focus on public expenditure, maintaining expenditure on law and order and, with my right hon. Friend the Chief Secretary, allowed my right hon. Friend the Secretary of State for Employment to introduce the excellent new apprenticeship schemes that were so warmly welcomed last Friday by the hon. Member for Kingston upon Hull, East (Mr. Prescott), Labour's new Front-Bench spokesman on employment—for which we were most grateful.
A similar focus on public expenditure has come with the additional money made available for "The Health of the Nation" and with the targeting of record amounts for the education of the nation's young—to which I now turn. If at any stage the otherwise mute and inglorious hon. Member for Dewsbury, who has been gagged by members of her own Front Bench, wants me to give way on any point, I will do so. I believe in freedom of information, and


I think that it is rotten that Labour's Chief Whip and the Leader of the Opposition have conspired to stop that fine public servant having her say.
My right hon. and learned Friend the Chancellor and my right hon. Friend the Chief Secretary rightly focused on measures designed to give this country a competitive edge in a fiercely competitive world. Among those measures, none is more important than investment in human capital, represented by our education system. We must ask much of our schools, colleges and universities, and we must ensure that consumers of education—pupils and students, parents and employers—have more information available than ever before to help them to make increasingly informed choices.
It is our responsibility to give more money where we can, as my right hon. and learned Friend the Chancellor and other Treasury Ministers have. It is our responsibility to set higher standards and to give more information, but we must also look for responsibility from those in the education system.
It is a matter of grave distress to me to have to report the irresponsible acts that have happened on various university campuses over the past couple of days. I am sure that no hon. Member would support those activities. The first matter was the outrageous attack and jostling of my right hon. Friend the Chief Secretary to the Treasury in Liverpool. [Interruption.] I am sorry that Opposition Members think that it is a joke. Eggs were thrown at my right hon. Friend and his staff, at least one of which struck my right hon. Friend. Luckily, he was wearing his campaigning suit. That was disgraceful behaviour by university students.

Mr. David Shaw: Was it a socialist egg?

Mr. Patten: Yes, it was a smelly egg.
On Friday, students at the University of East Anglia in Norwich displayed equally disagreeable and yobbish behaviour. I expect that that will be supported by Labour Members, some of whom, of course, made their careers early on through agitation on campuses, but it is a serious matter. A large number of students invaded the registry at the university. They sat in at the weekend and were removed from the university this morning, having caused damage and trouble, only when a writ was served on them. They had particularly targeted the university loans office, which was shut as a result last Friday.
Such events are not only happening in Norwich and Liverpool. Last Friday, some disagreeable events occurred even in the eternal city, Oxford, which I have the honour to represent. I hope that Opposition Members will treat the matter seriously because I was giving my constituents the opportunity to see me at my advice centre, which is the proper thing for any hon. Member to do. I hope that all democrats support that.
I was not allowed to leave the parish hall in Botley—more than 100 students were sitting outside and blocking my way. They refused to let me and my helper, Mr. Austin Griffiths, a man in his seventies and a parish councillor, leave. They were led by a lot of yobs from Balliol college, who were easily identifiable by a large banner that had "Balliol JCR" on it. We were driven back into the hall, the doors had to be locked and the police had to be called. [Interruption.] I am sorry that Oppposition Members treat

the matter as such a joke because it was a great waste of police time. The police had to send two cars to break a way through the students and make it possible for me to leave my surgery.
Worse than that—and I suspect that the hon. Member for Dewsbury will laugh even louder at this—were the disgraceful scenes that happened earlier in the sort of parish hall that many of us use for our surgeries: a prefabricated building with windows. As my constituents queued to see me, the hall was surrounded by yobbish students from Oxford university, who I am ashamed to represent in Parliament, and from Oxford Brookes university. They form a tiny minority—most of the students are hard working. They hammered on windows and walls and put my constituents in considerable fear.
The Vice-Chancellor of Oxford Brookes university, Dr. Booth, had been to see me earlier. It is a pity that he could not stay on a bit to remonstrate with the students outside. I was equally surprised when the chaplain to Oxford Brookes university—he came to see me during the demonstration, which was upsetting my constituents, who, like all constituents, want to see us to raise problems; that is our democratic job—said that the behaviour of the students was the type of thing that we should expect.
I have detailed three examples of extraordinarily bad behaviour by university students. If nothing else, it shows the need for the Education Bill, which will be debated in the other place tomorrow, including the necessary reforms of student union matters.

Mr. Mike Watson: Will the right hon. Gentleman give way?

Mr. Patten: I will not give way to the hon. Gentleman. The attitude of the Labour party throughout has been entirely frivolous. It obviously approves of such demonstrations and does not care if the democratic process is disturbed.
I exonerate the hon. Member for Bath (Mr. Foster) who, I think, probably has some sympathy. At least he has been allowed to speak this afternoon. For one dreadful moment, I thought that the Liberal Democrats might have let out the hon. Member for Caithness and Sutherland (Mr. Maclennan) for the afternoon but, luckily, we shall hear from the hon. Member for Bath.

Mrs. Ann Taylor: The Secretary of State complains about the behaviour of students. Does he agree that the best way to ensure that there was better behaviour generally throughout the education system would be to invest in pre-school and nursery education? Will he take this opportunity to answer the question that he refused to answer during the debate on the Queen's Speech concerning the Prime Minister's reported enthusiasm for nursery education? Two weeks ago, we heard that the Prime Minister was mad keen on nursery education and had plans for 1 million new places. Does the Secretary of State know anything about that?

Mr. Patten: We debated these issues last Friday week when the House discussed the national education and training targets. The Labour party is so keen on education and training that it did not field one person to support the hon. Lady. The Benches behind her were completely empty, which shows the lack of support for her policies. She had the opportunity then—and will have it again at Question Time—to debate nursery education.

Mrs. Ann Taylor: Will the Secretary of State answer the question—where are the plans for nursery education? Do they exist or not?

Mr. Patten: As I have told the House many times, the plans are there. [Interruption.] The hon. Lady has asked me a question; does she want me to answer? At the moment, 56 per cent. of three and four-year-olds receive nursery education, and 90 per cent. of three and four-year-olds receive nursery education, pre-school playgroup help or other forms of help, and the number is increasing. The position here is very different from that on the continent—most children in this country start school at rising five, and we have a better record on combined nursery help and primary school education for three and four-year-olds than any other western European country.
I have said many times, although the hon. Member for Dewsbury does not seem to understand—perhaps that is why she is not usually allowed out to speak these days —that the parents, higher education and further education charters have signalled a revolution in the availability of information. There is more and more evidence that performance tables are stimulating individual schools and colleges to look hard at what their students achieve and how they can be helped to do better. [Interruption.] Does the hon. Member for Bolsover (Mr. Skinner) want me to give way, as he appears to be muttering to himself rather menacingly?

Mr. Dennis Skinner: I was waiting for the right hon. Gentleman to answer my hon. Friend the Member for Dewsbury (Mrs. Taylor) who asked when the Government are going to plan for nursery education for all. I was saying that the right hon. Gentleman thinks that he is in a public school debating society and that his going to various colleges means that he has been educated beyond his intelligence.

Mr. Patten: That is uncharacteristically ungenerous from one of the few members of the Labour party who can oppose. We leave nursery education largely as a matter for local decision: whether in Tory-controlled Wandsworth or in Labour-controlled Tyneside, nursery education is provided as a matter of local choice.
The combination of ambitious public targets and informed consumer choice will raise standards, and is already doing so. I pay tribute to the devoted teachers throughout the education service who are already—

Dame Elaine Kellett-Bowman: A collection of about six intelligent students, led by the president of the students union, came to see me on Friday. They were later joined by some rather less intelligent ones but one of their number made a fair point. He was a mature student who pointed out that he was too old to get a loan and would therefore lose 10 per cent. of his income. That could be a difficulty for the small number of students in that category.

Mr. Patten: We are proud of the fact that about half of the 100,000 additional entrants into the university sector this autumn—the equivalent of 12 new universities created by the Government—are aged 24 or over. One of the problems is that a large number of local authorities do not seem to use their discretionary grants in the way that we believe is right in order to help—as they have the discretion to help from time to time—people aged over 24.
I pay tribute to the devoted teachers throughout the education service, who already make an enormous

contribution to the improvements that are made each year, but we constantly need to keep an eye on the international competition. No part of our economy—neither the private sector nor the public services to which, as a nation, we rightly attach importance—can flourish unless the wealth-creating sector flourishes. That sector can flourish only if it has a work force—at all levels, technician and graduate—whose skills are equal, if not superior, to those of our rivals.
Public spending on education is today a higher proportion of gross domestic product in the United Kingdom than in Germany or Japan—a point which I have endlessly made to the hon. Member for Dewsbury during the past 18 months. She is a very slow learner and does not yet seem to have picked up the substantial proportion of GDP that we spend on education in this country compared with our competitors. That means that some aspects of the British education service are the envy of the world, but we want that to be true for the whole of the service. That is why, since we were returned at the last general election, we have given, under the leadership of my right hon. Friend the Prime Minister, priority to education.
We have made it a manifesto priority that one young person in three should benefit from higher education by the end of the decade. As a result of a magnificent effort by the universities and colleges, we have almost achieved that target seven years early. We made it a priority last year to increase the numbers of students in further education by 25 per cent. We are on target to achieve that. The plans that my right hon. and learned Friend the Chancellor of the Exchequer has announced will continue that growth. We have made it a priority to support the continued expansion of the self-governing schools—grant-maintained schools —which are a central part of our strategy for levering up standards throughout the education service.
The Government's achievements in each sector of education are, therefore, linked. Our policies for raising standards in school, including the introduction of the GCSE under a Conservative Government and the establishment of a national curriculum, were designed specifically to lead to improved examination performance. They are doing so and they have led in turn to record numbers of young people staying on after the age of 16. I am pleased to be able to tell the House that last year more than 70 per cent. of 16-year-olds were in full-time education; in 1987, the year before the GCSE was introduced, the figure was only 48 per cent. Those improvements have produced the record A-level passes that we are now witnessing and the record numbers of students entering further and higher education—a great success story, backed by substantial sums of money, but we have to get better value for money out of our education system.
In a moment, I shall consider the Government's achievements and plans for each sector of education, but I should first say what is obvious to all, at least on the Conservative Benches. We have promoted levels of participation, for example, in higher and further education, beyond the dreams of the last Labour Government, but we have done so cost-effectively. While the numbers in higher education have increased dramatically, so has the universities' productivity—by 20 per cent. during the past five years. I pay tribute to that.
The expansion of further education and its new independence from local authority control means that we can expect the same increases in productivity from our 480


further education colleges and sixth form colleges. In education, we are getting more for taxpayers' money than ever before, but I think that we can do more and should do more.
I welcome what my right hon. and learned Friend the Chancellor said about the Government's private finance initiative. Co-operation between the public and private sectors means valuable new flexibility in funding capital projects. We are already seeing results in higher education, where, I can report to the House, in 1991 the universities were able to add a third again to the funding that was provided by central Government. That is a considerable improvement. The different scale of schools and further education colleges means that we shall have to work even harder to make progress there, but I can assure the House that we are closely considering the application of the private finance initiative to all of education, including schools, especially the secondary sector. My hon. Friend the Financial Secretary to the Treasury and I are working hard to those ends at the moment.
Let me say clearly that this initiative is about introducing additional resources into the school capital programme where we can, and certainly additional flexibility into the capital funding of education. Public funding will, I can reassure the House, remain an essential element of our capital expenditure, but if, by working closely with the private sector, schools and colleges can make public money go further and use it more effectively, I trust that no one in the House will quarrel with that.
I said earlier that I would speak in more detail about each of the sectors of education and I think that it is important to do that in the light of my right hon. and learned Friend's Budget statement. I shall start with those aspects of education for which I am directly responsible —higher and further education—before moving on to schools, where local authorities are still the channel for most of the funding.
I make no apologies for highlighting higher education. The scale of the success story here is still far too little recognised. When the last Labour Administration left office, only one in eight of our young people was entering higher education. This autumn, the figure will be almost one in three. We have moved from an elitist education system under Labour in 1978–79 to a system with much greater and wider access, after 14 years of Conservative Government. Although I am certainly not complacent, judged by the evidence of A-level entry scores, of completion rates and of degree classes, I think that it has been achieved without compromising quality.
We must watch quality extremely carefully as we expand university education. Universities and colleges have maintained the quality of higher education while achieving large increases in productivity. Productivity has improved by 20 per cent. between 1989 and 1992 and new approaches to teaching and learning should allow further productivity gains to be achieved in future while maintaining quality. Some especially good ideas were put out last week by Lord Flowers in another place about the more intensive use of university buildings.

Mrs. Ann Taylor: Can the Secretary of State now tell the House what he anticipates would be the impact of

charging students tuition fees, as proposed in the Government document that was under discussion before the Budget?

Mr. Patten: I never comment on stolen documents inside or outside the House. [Interruption.] I never comment on stolen Government documents inside or outside the House. I am grateful for all others from all other sources. I am easily found at Sanctuary buildings, SW1.
As far as participation is concerned, the fact that participation among young people is already held close to our target for the year 2000 is excellent news.

Mr. Skinner: Too clever by half.

Mr. Patten: That is something that I will never be able to say about the hon. Member for Bolsover.
However, the recent growth places a large burden on the taxpayer as well as on the institutions. That is why we plan to stabalise participation at its current record level for the next three years. The proportion of young people who are admitted during the next three years will stay the same. It will give universities a welcome breathing space after the recent pell-mell pace of change and an opportunity to ensure that every mechanism is in place to maintain quality. Quality must be the touchstone of our world-beating university system.
It will, of course, be for each university to decide precisely how many students to admit, but we are helping that stabilisation by reducing the level of tuition fees while boosting by an equivalent amount the grant that is paid to universities through the Higher Education Funding Councils. I must emphasise that that shift will have no effect on the overall level of resources that are available to universities, but it will mean that the funding council is able to influence recruitment more closely than in previous years.
Within the new fee levels, we are retaining the differential between the lecture room and the laboratory. We do—especially my hon. Friend the Member for Daventry (Mr. Boswell), the Minister for Further and Higher Education, building on the earlier important work of my hon. Friend the Member for Carshalton and Wallington (Mr. Forman) when he was Minister for Further and Higher Education—wish there to be an increase in the proportion of students in engineering and technology: a fundamental underpinning for the country's future prosperity. The fee differential is one way of encouraging that. Another is our new engineering bursaries scheme, which we hope will start next year, giving 2,000 of the most able young people each year an extra £500 a year for starting on accredited engineering courses. We need that for simple supply side reasons.
The Government's plans provide for capital grant to universities to increase by 20 per cent. in real terms during the next three years. That is good news for universities. In addition, universities' ability to raise from the private sector a significant proportion of the capital that they need is greatly enhanced by changes in the capital regime this year. These allow universities to borrow against Exchequer-funded assets and they relax the rules governing the reinvestment of proceeds of sales of such assets. That demonstrates the great strides being made by the private finance initiative.
Investment in higher education is certainly investment in the economic, as well as the cultural and social, future


of the country. In a demanding Budget, we are providing for recurrent funding to universities to rise by 6·7 per cent. between 1993–94 and 1994–95.

Mr. Andrew Rowe: Will my right hon. Friend accept that an important element in this higher education improvement is the export opportunities for British education which it will throw up? Indeed, increasingly it already throws them up; and there is great interest world wide in British education. Is this not a promising field?

Mr. Patten: My hon. Friend the Member for Daventry informs me that more than 100,000 foreign students are studying in this country today. That represents massive foreign exchange earnings. We recently welcomed 12,000 students from Malaysia, and when His Majesty the King of Malaysia was here only a few weeks ago, the Malaysian royal party spoke warmly of the education that those students receive here.
My hon. Friend the Member for Mid-Kent (Mr. Rowe) is of course right, although I am somewhat alarmed by the fact that we do not command a bigger share of the teaching of English abroad. Of the £6 billion market world wide, all too much is in the hands of colleges in Australia and Ireland. I should prefer more of this teaching to be in the hands of our home countries.

Mr. David Shaw: May I suggest that one of the ways in which more foreign students could be attracted to learn English here would be for state-run schools in my constituency and in east Kent to be allowed to take fee-paying students from Europe? It is an anomaly of the Education Act 1944 that we cannot expand an industry that is just sitting in east Kent waiting to be expanded, to the benefit of the public exchequer, of contacts with students from abroad and of helping to develop business contracts abroad.

Mr. Patten: That is an interesting idea which I have not heard before. I shall look into it and write to my hon. Friend whereupon perhaps we will have the chance to talk more about it.
I referred earlier to the burden that the expansion of higher education has placed on taxpayers, the great majority of whom have not enjoyed the economic and other benefits that higher education brings. As the Chancellor said in his Budget statement:
Tuition is free; but why should the bus driver or the pensioner also pay higher taxes to finance all the living costs of tomorrow's lawyers?"—[Official Report, 30 November 1993; Vol. 233, c 929.]

Mr. Dafydd Wigley: Is not the answer to question the fact that it is the son of the taxi driver or bus driver who becomes tomorrow's lawyer—if he has an opportunity to go to university? Without a grant, he may miss that opportunity.

Mr. Patten: It is precisely the sons and daughters of taxi drivers, pensioners and others who have been going to university in ever greater numbers. In 1979, only one in eight of them went to university; now one in three goes. I am proud of that record. I hope that the hon. Gentleman, with his characteristic fairness, will at least recognise that progress.
The Government are not alone in believing that the time has come to redress the balance. We want to do so in a way which does not deter qualified young people from entering

higher education and which builds on the success of the Government's policies of recent years. There is a strong moral case for doing that—for not asking those who do not have a lifetime's benefit from higher education to contribute too much from their hard-earned lower incomes. That is socially just, and I am surprised that the Labour party does not agree. There is an equally strong case on the ground of motivation. I cannot stress enough the fact that people value more what they have to pay towards, and are much less likely to drop out, thereby wasting our money and their efforts.
That is exactly the story of mature students—the people to whom my hon. Friend the Member for Lancaster (Dame E. Kellett-Bowman) referred earlier. Mature students have to struggle to pay for their courses; they work exceptionally hard, they do not drop out and they get their qualifications. The best way of ensuring that graduates bear more of the cost of their attendance in higher education is to accelerate the already planned shift in student support from the grant to the student loan.
That does not mean that students will be poorer. The total resources available through the main rates of maintenance grant and loan will be 4 per cent. higher next year than this, maintaining their value in real terms. The change will not adversely affect parents either. The average parental contribution will continue to fall in real terms. Nor will it affect graduates who are unemployed, at home with children or in low-paid occupations. Borrowers do not have to repay a penny until their income exceeds the threshold for deferment: about £14,000 a year at today's prices.
I should like to say a word about the contribution that further education makes, and will increasingly make, to economic regeneration. As we come out of the recession, it will be essential to have a highly skilled, up-to-date work force. Further education has a key role to play in improving the level and quality of our skills base, among young people and among those already in employment.
That is why we value so much the national targets for education and training which were the subject of such lively debate among Conservative Members two Fridays ago, when not one Labour Member, apart from the hon. Member for Dewsbury, turned up. That was disgraceful.
These targets enjoy the absolute commitment of the Prime Minister, the Secretary of State for Employment and all of us involved in the education service. [Interruption.] The hon. Member for Garscadden disputes what I have said, but he has only to look at the pages of Hansard. He will learn that not a single Labour Member spoke in the debate, apart from the hon. Member for Dewsbury.
Our reforms of further education have given colleges new freedoms to meet the needs of their customers—students and local employers. Our expenditure plans will allow them to increase participation and will help to sustain progress towards achievement of the targets. Our commitment to further education is clear: we are expanding the sector by 25 per cent. over the next three years, taking student numbers to more than 1 million full-time equivalents in the coming financial year—

Mr. David Shaw: A remarkable achievement.

Mr. Patten: It is indeed, and by a Conservative Government. Next year, for the first time, more than 2 million students will be in further education.
The basis on which the higher and further education sectors build is the output from schools. Our school reforms are founded on our commitment to raise standards. The improvements in examination performance and in staying-on rates are a vote of confidence from pupils that their education is both relevant and worth while.

Mr. Don Foster: Will the right hon. Gentleman comment on capital expenditure in the FE sector? Will he acknowledge that the increase in capital expenditure is extremely modest and will do little to meet the real needs created by the increased number of students in the sector?

Mr. Patten: The FE sector has never had so much money, relatively speaking, spent on it this century. We have increased the amount of money available for capital expenditure in the FE funding council's remit this year and, together with the Financial Secretary, I hope soon, through the private finance initiative, to be able to lever in much more private money, in exactly the same way as we already do in the university sector.

Dame Elaine Kellett-Bowman: I recently had the pleasure of attending a management development centre's opening ceremony at my further education college. It has successfully obtained funds from local firms to start this excellent venture, where an old shell which used to be used for decorating courses has now become a wonderful college.

Mr. Patten: I am pleased to hear it. We want further education colleges to be linked with local training and enterprise councils and with the business community, both in terms of teaching and of sharing management skills. Investment of this kind will expand the sector even more quickly.
At the heart of any good school is good teaching. That is why the Government have produced proposals on teacher training which will be debated in another place tomorrow. They are radical proposals, building on the progress that we have already made.
When the new teachers come out of their teacher training colleges they will go into grant-maintained schools or LEA-maintained schools. Although well over 1,000 schools have voted to go grant maintained, the majority of schools are still maintained by local authorities. The settlement announced for local authorities last Thursday allows for more than £17 billion to be spent on them and on other local authority education services next year. That represents an increase of 2·4 per cent. on this year's settlement, so education has fully maintained its share of the local government total. That is a reasonable and realistic settlement.
Doubtless in his winding-up speech the hon. Member for Blackburn (Mr. Straw) will issue terrible threats about what will happen if the settlement works out in the way he thinks it will. Speaking about last year's settlement, the hon. Gentleman said:
this can only mean job losses, even with a … pay freeze".
That did not materialise: there are as many teachers this year as there were last year. The hon. Gentleman also said:
councils will be short of £200 million in cash, comparing this year's budgets with next year's settlement;"—[0fficial Report, 26 November, 1992; Vol. 214, c. 1012.]
The hon. Gentleman said that there would be huge cuts in education, but LEAs increased their spending by more than

2 per cent. at a time of low inflation—[Interruption.] I hope that the hon. Member for Blackburn will not treat us to more scare stories in his winding-up speech, which I shall return from dinner to hear.

Mrs. Ann Taylor: I am sure that my hon. Friend looks forward to that. Will the Secretary of State confirm that the Audit Commission has shown that class sizes have risen in the past year?

Mr. Patten: I shall be coming to the Audit Commission shortly when I deal with efficiency in schools. Perhaps the hon. Lady will wait until I come to that. What matters is not just spending money, although it seems that that is all Labour wants. The issue is all about raising school performance. That requires action on a number of fronts, and we are tackling it through our wide-ranging programme of education reforms.
No doubt Opposition Members will speak about resources rather than performance. They will deal with percentages of this and that, but I remind them that there is no link between money and performance, as recent reports by the independent inspectorate, the Office for Standards in Education and the recently published performance tables have shown. I am not at all afraid to defend the Government's record on raising resources for schooling. There has been a huge increase of 47 per cent. in real terms on funding per pupil between 1978–80 and 1991–92, and next year's settlement allows for a further increase above the rate of inflation.
We have radically increased the amount that we spend on books, repairs and maintenance and school support staff, and I am keen to see that efficiency continue, because efficiency is important. The more that local education authorities can cut waste and bureaucracy, the more they can put into school budgets. For example, authorities are wasting huge sums maintaining up to 1·3 million surplus school places. That is costing LEAs £250 million a year.
The hon. Member for Dewsbury spoke about the Audit Commission. It found that LEAs could make savings of more than £20 million on, for example, home-to-school transport without any change in provision. Authorities continue to spend far too much on the administration of their LEAs. For example, in 1991, they spent £880 million on running those departments and covering the cost of corporate services which were charged to schools.
Many LEAs waste an enormous amount of time on debating frivolous issues rather than getting down to the serious business of running their schools properly. At a meeting of the Lib-Lab-controlled Oxfordshire county council 10 days ago, about half the time was spent attacking fox hunters and the other half was spent attacking me. That is a real case of the inarticulate and the politically irrelevant pursuing the splendid—in both cases. The sooner local authorities such as Oxfordshire county council —[Interruption.] and those in Lancashire and particularly the one in Derbyshire, which has made a real pig's ear of running education, are abolished, the better. Several Opposition Members leapt to their feet to defend Derbyshire.
Schools must keep under careful review the size of administration overheads to ensure that money is spent wisely. We shall keep a close eye on that. The Audit Commission reported that some schools were developing their resources efficiently and well, but it also found that schools of similar size serving similar areas with similar


socio-economic backgrounds and circumstances could sometimes show a fivefold difference in administration costs. That money should be spent not on administration but on children, books, teachers and buildings.
The Government's principal aims for education are to raise standards of achievement; to secure the best possible return from education resources, in which we invest more than Germany or Japan; to enhance parental choice, ensure rigorous testing and transfer responsibility to individual schools and their governors; to increase participation in higher and further education; and to maintain the present record level of participation in higher education while ensuring its continuing quality.
In my brief speech, I have spoken mainly, but not exclusively, about the spending programmes for which I have responsibility, but I could have made the same pionts about efficiency, effectiveness and the targeting of resources had I been speaking about any of the Government's proposals. The Budget statement by my right hon. and learned Friend the Chancellor made clear the Government's continuing intellectual vigour and our readiness to scrutinise without preconceptions all areas of Government activity. It also made plain our determination to clear the way for the private sector in areas where it can produce results most effectively, whether in social or capital spending, and to concentrate public investment where it is likely to do most good. For those reasons, I commend to the House the Budget and the Government's excellent spending plans.

Mr. Donald Dewar: I am always slightly puzzled by the Secretary of State for Education because he likes to make himself unpopular. I can assure him that in the past 50 rather tiresome minutes he has entirely succeeded. I shall not spend much time complaining bitterly that the Secretary of State for Social Security will not speak in the debate because to do so would be rather puerile. I console myself with the thought that the Secretary of State for Education managed to sound remarkably like a slightly upmarket Oxford yob—the sort of person he complained about in his speech. We should be grateful that he spoke for only 50 minutes and not for one and a half hours, which was the time that he spent on an earlier speech.
The right hon. Gentleman's speech started by being offensive and deteriorated into boredom. It was largely cold kale reheated, and I shall not spend much time on some of the issues that he raised. Predictably, he mentioned the quote from The People. I hope that this is the last time that I shall have to refer to it, but I am happy to do so. The Secretary of State will know what I am about to say because he has had a letter on the subject.
I received a telephone call before the Budget from a journalist who wished to run past me—I think that that was the phrase used—some possibilities to see whether I thought that they were likely to be in the Budget— [Interruption.] The journalist was Mr. Nigel Nelson of The People. He tried out a number of rumours. He said he had heard that the Government might put 50p on every pensioner. I said that they might do that if they wanted to try to go beyond the uprating machinery. At no time, as Mr. Nelson has confirmed—personally through the Chancellor,

I understand, and certainly through me—did I suggest that I approved of that possibility, although I certainly said that it was a possible starter for what the Government might do.
When I first raised the matter with Mr. Nelson he said that the very contrary was the case. It is easy to quote from The People, but it is obviously far too much trouble to read it. In his column, Mr. Nelson deals with the matter at some length. He quotes the Prime Minister's suggestion that I had endorsed the proposition and says:
What a load of cobblers, as I told Ken Clarke when he brought the matter up again over a drink of white wine in his Treasury office … Donald said nothing of the sort.
I do not necessarily endorse all the robust language in the column, but the facts are perfectly clear. I hope that the right hon. Gentleman will not continue deliberately to misrepresent them now that he knows what they are.

Mr. Patten: The initial fact is that my right hon. and learned Friend wastes public expenditure by giving white wine to journalists from The People.
If the hon. Gentleman is recanting on what he said earlier and taking back the words quoted in The People newspaper, will he say exactly and precisely what additional sums of public expenditure he would wish to see spent on relief for pensioners, whether he has the approval of his hon. Friend the shadow Chancellor of the Exchequer for that, and where the money will come from?

Mr. Dewar: The right hon. Gentleman is being a little less than gracious. I hope that he will accept my word and the word of the journalist about the way the quote originated. It makes it clear that at no time can I be unfairly accused of the interpretation rather tendentiously put upon it by Ministers, who must be very unconfident of their own case.
We believe that value added tax on domestic fuel is a regressive tax. It should not have been imposed in the first place and will undoubtedly do damage. If the right hon. Gentleman thinks that he can sell to pensioners the idea that an increased charge of £1 a week, or if it is a family with young children approximately £1·.30 or £1·40, is adequately compensated by 50p—and if it is an uprating of benefits it will be less—then he is living in a fool's paradise and he will be very quickly awakened.

The Chancellor of the Exchequer (Mr. Kenneth Clarke): I have looked at The People again. I realise that Mr. Nelson has made these comments about it—I had an exchange with him about it also—but the original report actually quotes the hon. Gentleman. I do not believe that Mr. Nelson has retracted the accuracy of his report. It says:
The Government has to add something on to take account of that, and they could do it with an extra 50p on pensions.
Nothing follows that quotation. It is capable of only one meaning, and the hon. Gentleman, with the assistance of a journalist—who is entitled to his political sympathies and is no doubt sympathetic to the hon. Gentleman—is trying to retract it in order to maintain a fairly useless course of opposition to the proposed measure.

Mr. Dewar: I am sorry that the right hon. and learned Gentleman is taking that attitude. I have explained to him how the conversation progressed. The 50p was put to me as a possibility for inclusion in the Budget. I said that it could be done. That is what happened. You, Madam Deputy Speaker, the right hon. and learned Gentleman and the House have my word for that, and it is backed up by the journalist who carried out the interview. I will be sorry if


the Minister is not prepared to accept that. If the Minister offered me that explanation in similar circumstances, I would accept it from him. I hope that on wiser consideration he will do the same.
I have said my piece on that, so let me turn to the Budget.

Mr. Rod Richards: Will the hon. Gentleman give way?

Mr. Dewar: I do not know who the hon. Gentleman is, but I want to turn to the Budget.

Mr. Richards: rose—

Madam Deputy Speaker (Dame Janet Fookes): Order. The hon. Gentleman knows full well that he must resume his seat if the person who has the Floor does not give way.

Mr. Dewar: I now turn to the Budget, and particularly to some of the social security implications, which are of importance.
I have heard some complementary things said about the Budget. I have heard it said that it is adroit and agile. I have heard some of the Chancellor's hon. Friends saying that he got away with it—"They bought it", was one of the phrases that frequently arose. There is a degree of truth in that.
There may be some hon. Members who believe that the Budget has been a success; in the same way that they thought that the Budget of Lord Lawson, when he was in his unassailable period, was a success; and thought that the Budget of the right hon. Member for Kingston upon Thames (Mr. Lamont), who is now a pundit on the less popular television programmes, was a success.
One simple judgment of the Budget will endure: the public will see it as a "pay-more-get-less" Budget. The old adage that politicians give with one hand and take with the other is, sadly, singularly inappropriate in this case. We have seen a tax hike of £24 billion over three years, the largest since 1945 and perhaps in history, and a tough public expenditure round that will take another £3·5 billion or £4 billion out of the expected total.
It is a Budget with a mark of dishonesty about it. Others have been left to do the dirty work. I suppose it was ever thus that local government is to bear the bad news and take the blame. Other Ministers will also be in the firing line.
I do not like violence of any sort—it does not help the course of public and political debate—and I do not sympathise with people who throw eggs or offer violent conduct in the way that the Secretary of State has described. I would be sorry if there were yobs at Balliol, as I would be if there were yobs in any other institute of higher education. The right hon. Gentleman should realise that the cuts, year by year over the next three years, are not likely to be forgotten and will be persistently resented, as will the rumours that the Treasury has its eye on tuition fees as the next nice little earner.
We face difficult times and I take no pleasure from that. There are some neat calculations on public expenditure. The contingency fund has been heavily raided and almost eliminated. It is unlikely that those neat calculations will hold; they will pinch and turn out to be too neat. There is something of a sleight of hand about the accountancy, and the word "creative" springs to mind.
The root cause of our problems is that within a year a £36 billion public sector borrowing requirement escalated to £50 billion. The Chief Secretary offered an explanation the other day to my hon. Friend the Member for Durham, North-West (Ms Armstrong). He said, "We thought the recession was coming to an end." That might help some people to decide whether it was deceit or incompetence. I presume that was a plea in mitigation, but it was the latter. If the Minister thought that he had no problems with the public sector borrowing requirement because he anticipated sudden and exponential growth, he is living in some sort of extended fool's paradise. That is the sort of optimism that has been the hallmark of Conservative predictions for several years.
People will remember the Prime Minister telling the electorate, with all the panache of an under-manager of the local building society—[Interruption.] I imagine that the Secretary of State for Education is writing that line down; I take it that he thinks it is worthy of himself. The Prime Minister said, "Vote Conservative on Thursday and the recovery continues on Friday." Since then we have had increasingly difficult times. Even the most loyal of Government apologists can only describe the recovery as fragile.
We have learnt quite a lot from what the Chancellor has said about social spending and, particularly, the social security budget. He said that a 3 per cent. per annum increase in the social security budget was unsustainable because it was out of line with growth in the economy as a whole. In some ways that is a fair point. It underlines the fact that one of the problems of the Budget is that it is aiming for low growth again. It assumes that there will be a period of continuing high unemployment. The assumption—I accept that it is not a prediction —over the next two or three years is 2·75 million unemployed and a continuing sluggish growth rate, which will be further depressed by the public sector cuts and the hikes in taxation.
We will get an increase in social security spending—people are talking about £92 million or £93 million in three years' time—but that is not a rush of generosity to the Minister's head. It does not tackle with renewed vigour the problems of poverty and deprivation in our society but funds the social fall-out of recession, which continues to dog everyone involved in the social security field.
It is important to point out that this country is not unusually spendthrift in social matters, especially social security. The Secretary of State for Social Security, who is not present now—I make no complaint about that, and I am glad to see that one of his senior colleagues is here—published some very helpful international comparisons. As the Chancellor and the Chief Secretary to the Treasury will know, the comparisons showed that in 1992—the last year for which figures were available—social protection expenditure, which comprises social security and health spending, accounted for 23 per cent. of our gross domestic product and 26 per cent. of that of the European Community, as it was then known, so in that sense our spending was below the European average. I am the first to accept that we should take account of certain problems, but those figures provide a useful corrective for the dangerous fallacy that we should rush into instant, damaging and irrevocable decisions because the whole structure is about to implode and crash down on us.
I must confess to being fascinated by what is currently happening in the Treasury. I am particularly pleased that


both the Chancellor and the Chief Secretary have had the courtesy to be present this afternoon. Perhaps they, or the Financial Secretry when he winds up the debate, will be able to throw some light on what has been happening.
The Chief Secretary is very much the leader of the pack. He is the central figure in what the Prime Minister once defined as the bastard tendency—the leading figure of the hard right. I have read with considerable interest what the right hon. Gentleman has said in recent months. I have read a number of his lectures—for instance, the lecture that he delivered to the "Church at Work" conference, and the series of lectures that he gave to try to secure the spotlight at the Conservative party conference in Blackpool.
We all know that the Chief Secretary is deeply committed to the minimalist state. He is deeply committed to the idea that the state should withdraw from major areas of provision—that public sector spending as a percentage of national income is currently far too high and should be reduced as a matter of political faith. I believe that that is an honourably held opinion and I have no doubt that although the right hon. Gentleman is 100 per cent. wrong he is also 100 per cent. convinced—I know a zealot when I see one. Honest Tory Back Benchers have been astonished to discover that public spending, for example, brings moral evils in its wake, that the state should withdraw from whole areas of provision and that the Chief Secretary is worried about what he has described as the
giddy atmosphere of high generosity with other people's money
which apparently marked the days of Lady Thatcher and her Conservative Administration.
I realise that "back to basics" is important. The Chief Secretary wants to get away from what he has described in another of his phrases as the
studied amorality of the state".
That is all of a piece. Therefore, I, too, was astonished when I read the other day about the Chancellor's on-the-record briefing, which dominated the front pages of The Times and a number of other papers. Following our opening exchanges, I recognise that journalists can be fallible, and the Chancellor may have been misquoted. According to the journalists who attended the briefing, however, the Chancellor denied every one of the principles that the Chief Secretary has paraded so energetically: indeed he almost went out of his way to tick them off. The Chancellor went out of his way to say that he did not believe in the minimalist state. He wanted no part of the revivalist "back to basics" campaign. He said that the
'day to day practicalities of politics' had to deal with society as it was … 'But I do not think we should use things like the welfare state as an instrument for trying to move those changes in any particular direction.—
Some of us may have considerable sympathy with that view, but it is a very odd comment on "back to basics", and the beliefs expressed—and widely advertised—not only by the Chief Secretary but by the Prime Minister.
The Chancellor went on to say that there was to be no nonsense about contracting out of the basic pension. The Secretary of State for Social Security has been hinting at that— nudging it up the political agenda—for months.

Dame Elaine Kellett-Bowman: The hon. Gentleman is out of date.

Mr. Dewar: If the hon. Lady wishes to speak, she will have to wait.
I was told by journalists at the briefing that, when it was suggested that the Secretary of State for Social Security

might say that contracting out of the basic state pension was a runner, the Chancellor told him very brusquely that it was not. It could not have been clearer. That shows an interesting tension—optimists, I suppose, might call it constructive—in the Treasury team: one Minister seems to be saying exactly the opposite of what the other is saying. I can only say that the Chancellor has given short shrift to the Prime Minister and summary execution to the Secretary of State for Social Security, and his advice to the Chief Secretary is clearly "Button up and shut up". I do not think that the Treasury can be a very happy place.

Mr. Kenneth Clarke: Will the hon. Gentleman give way?

Mr. Dewar: I am anxious to give way to the Chancellor, and I shall do so in a moment.
We come next to a particularly interesting case study. I have mentioned contracting out of the state pension. According to The Times, the Chancellor said:
I do not see that"—
the basic state pension—
as being opted out of—or left as a vestigial remain for those who cannot provide for themselves.
That little bit of fractured grammar has the ring of truth: it sounds like a genuine quote to me. The Chancellor has specifically ruled out such a move, but we know that the Department of Social Security has been hinting at it—indeed, talking it up in a very deliberate way. Moreover, we know from documents that have reached the public domain that the Department has set up a working party to prepare the ground for a report in February 1994 on a scheme to encourage people to opt out of the basic contributory pension. That is one of the central strategies, but the Chancellor is apparently denying its existence.

Mr. Clarke: I am grateful to the hon. Gentleman for pausing for breath, and for his courtesy in giving way to me.
The hon. Gentleman has quoted my remarks to journalists—indicating where quotation marks appeared—with precisely the same degree of accuracy that I used in quoting what he had said, again in quotation marks, to The People. The hon. Gentleman, however, added embellishments that bore no relation to what appeared in the newspaper. I certainly made no disparaging remarks about "back to basics".
The basics that all Conservative Members agree should be returned to are the proper running of a free-market economy and the reform of a welfare state that needs to be kept modern. So far, the hon. Gentleman's speech has betrayed no views on the proper running of an economy, or on the reform of the welfare state. Presumably it is all in abeyance: presumably he will try to explain to the great and the good on the commission that his party has set up how the welfare state should be kept modern and affordable.

Mr. Dewar: I am not being sarcastic. Of course I understand that politicians can be misquoted. The Chancellor says that I am "embellishing" when I say that "back to basics" is not an issue as a result of what he has been quoted as saying. Given what has been said by the Secretaries of State for Wales and for Social Security, by the Chief Secretary and by various others, I understand "back to basics" to mean that we can use the social security system to try to reshape the moral climate.
That is the whole point of a "runner" which I do not think will become Government policy, but which has been much discussed: the New Jersey experiment. Under the system, the more children people have, the less chance they have of being recognised in the benefits system. I do not think that anything dishonourable is involved, but the Chancellor should recognise that some of his views are not compatible with "back to basics" as it is understood by a good many of his hon. Friends, quite apart from my party. For instance, he has said that we should not use the welfare state
as an instrument for trying to move those changes in any particular direction.
I have the papers here, and there is no doubt that the Department of Social Security intends to set up a working party
To examine the scope for extending the opting out of contributory benefits, and the greater use of private provision for contingencies, including unemployment, sickness, invalidity and, in particular, retirement".
The party is to report, by February 1994,
a progressive move towards voluntary opting out of entitlement to basic state pension through private provision being made initially by younger people".
There is no doubt that that was on the stocks, although I understand that it was ruled out by the Chancellor at the meeting.
As the hon. Member for Lancaster (Dame E. Kellett-Bowman) was about to draw to my attention, it was fascinating when the Secretary of State for Social Security appeared on the "Walden" show on Sunday. I have never doubted that the Secretary of State for Social Security is a man who is with the hard right heart and soul, who has been picked out again and again as one of their leaders—perhaps not as intellectually distinguished as the Chief Secretary, but certainly a man of considerable intelligence—and is a true heir to the Conservative party's former leader.
Strangely, Mr. Walden appealed to the Secretary of State not to disappoint his fans and to stand his ground, but he appealed in vain. The Secretary of State said that he would never contemplate people contracting out of the basic state pension. It was for him a case of not now, not ever. Of course, he could not talk for Governments in future, but while he was there that heresy would never see the light of day. To say that I was astonished is not meant lightly. It is an interesting example of the dynamics of the Government at the moment. The Secretary of State for Social Security was reduced to acting like a naughty boy caught defaulting—over-protesting innocence by saying "cross my heart, hope to die" or "I'll never do it again, Guv,". It was a humiliating climb-down.

Mr. Peter Thurnham: The gist of the hon. Gentleman's speech seems to be that all the thinking is going on among the Conservative Members. Would he enlighten us about Labour party policy? Is it still to spend vast sums of money increasing child benefit and reducing the common age for pensions?

Mr. Dewar: There were many opportunities for such debates, which shall continue. There has been some interesting speculation in the press, which is flattering, but not always well informed. It may have escaped the hon. Gentleman's notice that we are debating the Queen's Speech and what the Government are doing—

Mr. Kenneth Clarke: The Budget.

Mr. Dewar: The right hon. and learned Member for Rushcliffe (Mr. Clarke) now sees himself so much as some sort of colossus bestriding the scene that that slip of tongue is perhaps understandable.
Allow me to give the Chancellor some warning words of advice—they are well meant: "Watch your back because zealots do not give up". I notice that in the Glasgow Herald today, Mr. Geoffrey Parkhouse refers to the Secretary of State for Social Security and the Chief Secretary as squashed and having to bear it, but that they would bide their time. I have no doubt that they will. As the economic strategy falls apart and the reality of the Budget becomes apparent, the Chancellor is very much at risk.

Mr. Clarke: I am not entering into combat again with the hon. Gentleman, but I must follow up the point made by my hon. Friend the Member for Bolton, North-East (Mr. Thurnham). We are debating the Budget, yet the hon. Member for Glasgow, Garscadden (Mr. Dewar) is spending all his time voicing what he thought we could have done, what he thinks that we may do in future, what he hoped that we had done and, so far, he has not dealt with what we have done. Does he have any views on equalising the state pension age, the affordability of the system into the next century and whether invalidity benefit should be subject to an objective medical test to determine whether somebody is fit for work? Will he deal with the Budget at all or is his speech merely a handful of speculation about what may or may not be going on in that lively intellectual tumult of the Conservative party?

Mr. Dewar: The right hon. and learned Gentleman has some difficulty in recognising well-documented events when they are drawn to his attention.
I shall not speak for much longer, but will now turn to some of the issues that the Chancellor raised because they are important. He is not going to get many brownie points for his rather depressing selection of social proposals. I shall begin by mentioning what I welcome. I welcome the disregard on family credit to help with child care provision. My advisors—I make no bones about taking advice on such a complicated scheme, which has not yet been spelt out in great detail—tell me that it is nothing like as generous as was first suggested when one gets down to the fine print. As I understand the scheme, if one is working and receiving the maximum family credit—the cut-off point of £71.70 a week—one does not benefit at all from the special proposition. Perhaps the Financial Secretary, who is well informed, can confirm, as I am told, that over 90 per cent. of lone parents with one child who currently receive family credit are receiving the maximum amount and, therefore, will get no help whatever from the new concession. If that startling figure is true, the gratitude with which the proposition was greeted will be heavily muted.
We knew that invalidity benefit was marked for execution. It was a long, contemplated strike, but before it, the "thought police" had to go to work. The Prime Minister may be astonished at the extent to which the numbers had risen—I think the phrase that he used was that it "beggars belief'—but people such as the Minister for Social Security and Disabled People remember evidence given to the Public Accounts Committee in 1990 by the present permanent secretary, Sir Michael Partridge, who took the view that the increase in numbers was partly demographic and partly due to rising unemployment and the direct


connection between the two phenomena. I have no doubt that Sir Michael has rethought his position—civil servants have to adopt the stance of their masters. The current Leader of the House has left the Department of Social Security and a much more harsh regime now rules in its place.
The incapacity benefit is not an attempt to reform or improve the welfare system. It is a rather petty change that has more to do with achieving minor savings for the Treasury and feeding some of the prejudices found among Conservative Members. The scheme will create an odd situation in which an enormous number of people—many who are anxious are already contacting me and other hon. Members—imagine that they will be at risk even if they are not. Of course, the whole point of the scheme is to ensure that 70,000—a figure quoted by Ministers—who were geniuinely eligible for invalidity benefit will not be eligible under the new benefit. Whether it is worth all that trouble, misery and uncertainty, I beg to doubt.
We shall have to wait and see the effects of the taxation, as it will be carefully phased, but it will be odd that some people on invalidity benefit will not pay tax, while other people in receipt of incapacity benefit will be taxed. I remember asking a parliamentary question on that subject and the answer given was that if invalidity benefit was taxed—admittedly, including everyone—900,000 people would face increased tax bills of about £500 a year and 200,000 people would pay tax although their only income was invalidity benefit. When the Financial Secretary replies, will he confirm that that is the kind of pattern that he expects to emerge? He may be aware of one of the arguments of the working party studies that have reached the public domain against taxing invalidity benefit in the way in which it has now been decided was that it would be a considerable disincentive to people trying to enter the Labour market. If they took a job and it collapsed under them—perhaps through no fault of their own—they would then go back on incapacity benefit for which they would worry whether they would qualify and over which they would certainly have an encounter with the tax man. Apparently, that scruple has been overcome.
There is also the matter of sick pay transfer and the burden of it shifting on to the larger firm. Again, many responsible people—I am not talking of partisan politicians—see that as a double squeeze. People are worried about their eligibility under the new benefit scheme. They are worried that if they move into employment and experience genuine illness, it may affect their record, because there is no rebate on statutory sick pay and therefore an incentive to get rid of them or not to hire them in the first place. Given the rather paltry and mean change, it is clear that the difficulties have not been properly assessed.
I do not intend to go into great detail on the job seeker's allowance. However, I protest about one aspect. We are told that if the cut from 12 months to six months were applied now to unemployment benefit, 240,000 people would lose entitlement. That would mean—in Ministers' minds, this is possibly a fortunate by-product—that 240,000 people would also be removed from the unemployment roll. I recognise, of course, that Parliament can change the rules; that is what parliamentary sovereignty means. I recognise that Ministers are irritated if one says that if one was paying into a policy and building up an entitlement for unemployment cover, and if the company suddenly changed the terms so dramatically, one would shout from the roof tops. It is not the same. We can

do that. The question is not, "Can we do it?" The questions are, "Should we do it? What does it do to confidence? What does it do to the contributory principle?"
I remember the Minister for Social Security and Disabled People, a few months ago, eloquently defending that principle as an important part of the Government's programme. Again, there is a nasty element of expediency. That is especially wounding when, on Monday, we shall give a Second Reading to the Social Security (Contributions) Bill, which will put up national insurance contributions by 1 per cent. That will rake in about £2 billion—£300 million more than would come from a penny on income tax. We are cutting entitlement on the one hand and asking for more on the other hand in an especially unpleasant fashion. The Budget is about paying more and getting less.
I recognise that some people—the Secretary of State for Education may be a candidate—will sneer a little bit about the politics of envy. However, when I open the Evening Standard this evening, when I look at the financial pages of two or three days ago and when I read about the settlements taking place in Goldman Sachs, where executives have been made millionaires by their Christmas bonuses, over and above their salaries, I wonder about the poor society that cannot deal with the problems of poverty and about a Government who feel that they must send in the demolition men simply because we cannot afford to deal with the problems.

Mr. Charles Hendry: The hon. Gentleman has an unerring ability to sound like Eeyore every time he speaks because of his depressing remarks. He cannot see a piece of silver without wrapping a dark cloud round it. Will he tell the House of one sentence in his speech, which has gone on now for 35 minutes, which is designed to boost the confidence of consumers, of businesses or of international investors who look to this country? is it not his job, as a responsible politician and as a responsible Member of Parliament, to try to help the country out of recession? Can he tell us of one point in his speech that has contributed towards that end?

Mr. Dewar: I concede right away that I am dealing with one particular aspect of the Budget—its impact on social policy. I have not dealt with industry and I make no apology for that. Many of my colleagues have and will, no doubt, return to the subject.
I do not believe that we can extract ourselves from our difficulties by the battening-down approach that is the mark of this Budget. I unashamedly accept that we are in difficulties. This Government, who used to be amazingly arrogant about the performance of their predecessors, are now borrowing £1 billion a week to balance the books. That position cannot be shrugged off. However, I am not sure that we get out of it simply by battening down the hatches, by cutting public expenditure and by hiking up taxation, certainly not in the way that the Government have chosen. We have a Chancellor who is determined to ride out a storm. That is very uncomfortable and is not always the best way in which to deal with the problems.
My difficulties with the Budget are the Government's attitude and ambitions. Their ambitions and their approach to infrastructure development and to the building of the nation's future are depressing. I listened the other night to


the debate on transport and on investment in the transport industry. I have seldom seen a Government more taken apart and more on the defensive.
When I read reports on Europe—I only read them because I am not involved—I read of the dog-in-the-manger attitude taken by Ministers to the, no doubt, halting and sometimes insecure but genuine efforts to try to work out a European approach to dealing with the problems of unemployment and to combating unemploymemt. When I talk to friends in politics, who are on the left and on the right, in other countries, I find that one thing certainly unites them—the belief that this Government are consistently unhelpful and consistently obstructive.
This Budget is about yesterday's problems and how we scramble out of them; it is not about creating any sort of opportunity. I fear that it will become more and more painfully apparent that we are making mistakes as the months unfold. We talk a lot about morality and we talk a lot about the need for economic success. It seems to me that we are combining in many ways the worst of both worlds in this Budget. We shall all come to regret it.

Sir Terence Higgins: I congratulate my right hon. and learned Friend the Chancellor on his presentation on Budget day, which was extremely effective. The Select Committee on Procedure has just published its responses to the Government's proposals on budgetary procedure and I very much hope that we shall have the opportunity before long to debate that report. It is important that we should appraise the way in which the new format is working.
The hon. Member for Glasgow, Garscadden (Mr. Dewar), in a Freudian slip, referred to the debate on the Queen's Speech. That was a rather understandable slip. We had an economic debate on the Queen's Speech, at the choice of the Opposition, just a few days before the Budget statement and we now have a wide-ranging debate on the Budget this afternoon. That does not really fulfil the objective set by the Government, who said:
this improved presentation should contribute to a more informed and focused debate … on public expenditure, taxation and borrowing".
We shall need to look carefully at the extent to which the change in timing and the change in format are achieving the Government's objectives.
The centrepiece of my right hon. and learned Friend's Budget is, in a very real sense, the proposal for putting VAT on fuel and the proposal for compensating pensioners and people on low incomes who are affected seriously. My feeling, as my right hon. and learned Friend well knows, is that this is a political time bomb. No tax, not even the community charge, has caused as much furore as this tax before a single penny of it has been paid. I felt that there was a strong caes for going to the 17·5 per cent. rate straight away rather than for moving to 8 per cent. next spring and then to 17·5 per cent. after that.
I in no way complain about—on the contrary, I greatly welcome—my right hon. and learned Friend's proposal for helping those on pensions and those on low incomes who will be affected by the tax. My right hon. and learned Friend has emerged as a kind of Robin Hood. [HON. MEMBERS: "Nottingham."] Indeed, he comes from Nottingham. I sometimes thought that he might make a

rather good Friar Tuck; Robin Hood was not the role in which I envisaged him. My right hon. and learned Friend now proposes to impose VAT on fuel on virtually the entire population and then to spend almost half the money raised on 15 million people. That action cannot be described, as the hon. Member for Garscadden did, as a regressive move. On the contrary, it is a move in the opposite direction.
I am glad that my right hon. and learned Friend has resisted the temptation to extend VAT to other items that are presently zero rated. The experience of extending VAT to fuel should give us a clear indication of what the consequences of extending VAT to other items would be. We should be likely to lose half the revenue in compensating the people affected. Be that as it may, I hope that my right hon. and learned Friend will not be tempted to stick at 8 per cent. for fuel. The introduction of multiple rates in VAT is a move that should not be made. In addition, my right hon. and learned Friend will have to be pretty tough with members of the European Community in resisting their pressures to abolish zero rating here. Perhaps I might also express a general concern about the tendency of Chancellors of the Exchequer—perhaps two of the recent Chancellors—to anticipate future tax changes. If the Treasury forecast was brilliantly accurate and could be relied upon, there might be a case for that. Any attempt to pre-empt the view of the Chancellor 18 months or two years ahead, when the forecast clearly is not accurate, should be done with considerable restraint.
Another thing that has worried me since the last Budget has been the extent to which many proposals for tax increases or public expenditure cuts have been floating around. Despite my right hon. and learned Friend's view on purdah, the case for both the Chancellor and the Chief Secretary going into purdah in the period up to the Budget is considerable.
Of course, there is great relief once we have heard in the Budget that many of the scare stories have not come to fruition. We should not underestimate the concern which scare stories about the closing of sub-post offices or the means-testing of pensions can cause to our constituents. Their fears are real, and the fact that those fears turn out not to be realised in no way should diminish the concern that is felt in the intervening period.

Mr. Dewar: I have some sympathy with the right hon. Gentleman. Does he accept that the disinformation sometimes comes from the Government, not from the Opposition?

Sir Terence Higgins: I said that it had been a rather general tendency lately and it is important to bear that in mind.
Having got through the Budget, there are other proposals which have been floated immediately. I refer in particular to the proposal for negative income tax or a tax credit scheme which has been going around for the past few days. Long ago in 1974, the Conservative Government did a great deal of work on that subject. Had we not lost the 1974 election, we had every intention of legislating and we had gone a long way towards drafting the proposals.
There is a great case for a tax credit scheme. We recognised at that time that we did not have the money to make the change. It is an expensive change and we proposed to legislate and to implement gradually over time. The same idea came up 10 years ago, when a study


group on the subject, which I happened to chair, was set up in the Conservative party. My right hon. Friend the Leader of the House was much involved at that time. We were concerned that changes had been made in the interim by the Labour Government, because Joel Barnett and Barbara Castle—as they then were—had stopped our proposals. It was felt that, in the intervening space of time, we had probably diverted from the direction which a tax credit scheme would require. That turned out not to be the case.
If one looks in detail, it is no more difficult now than it would have been earlier to implement a tax credit scheme. In some ways, it would solve the problem of child benefit and similar problems. The problem with child benefit is that it is universal, because it is a tax allowance which applies to everyone, whatever tax rate they might pay. That is why we are stuck with the universal child benefit handout. However, if we were to move to a tax credit scheme, that would mould automatically to the arrangements where, as income goes up, so benefits decline and tax payments increase.

Mr. Jack Straw: It is no secret that the Labour Government which came in in 1974 also looked at the tax credit proposal. For similar reasons to which the right hon. Gentleman adverted, they decided that they could not go ahead at that time because of the additional cost, over and above the existing and separate schemes of tax allowances and social security benefits. Does the right hon. Gentleman accept that the cost of implementing such a scheme would still be substantial?

Sir Terence Higgins: That is certainly the case, but I do not think that that was the reason why the proposal was killed. It was killed by a Committee which contained—as I remember—Barbara Castle, Joel Barnett and someone else.

Dame Elaine Kellett-Bowman: I was on the Committee also.

Sir Terence Higgins: I apologise to my hon. Friend.

Madam Deputy Speaker: Order. The hon. Lady has been here long enough to know my feelings about seated Interventions.

Sir Terence Higgins: I accept the point made by the hon. Member for Blackburn (Mr. Straw) and I said so a moment ago. We were proposing to legislate and then bring in the proposal as soon as it could be afforded without wrecking the economy.

Mr. Robert Sheldon: I was also a member of that Select Committee. The major reason why the proposal was not brought in was the cost, but also 44 benefits would not have been included. That would have produced a large number of falsifications of the amounts of money which were going to be paid to an individual. That was the complexity on which the proposals foundered.

Sir Terence Higgins: That is true—I am agreeing with everyone. It is true that we could not have a tax credit scheme that was totally comprehensive.

Dame Elaine Kellett-Bowman: Will my right hon. Friend give way?

Sir Terence Higgins: With respect to my hon. Friend, I must press on. I will now leave what turned out to be a remarkably controversial remark and speak on the Budget judgments.
I will speak about two of the broad issues raised by my right hon. and learned Friend. We are having the old debate between Keynesians and monetarists. It does not seem inappropriate that, in the present economic situation, we should run a large budget deficit. I understand the points which have been made by my right hon. and learned Friend about the need to reduce that in time. There are arguments for delaying that until such time as the recovery has proceeded further, and one could then see to what extent the PSBR had diminished because of increases in tax revenues and reductions in unemployment benefit.
I fear that, if anything, there is a danger that my right hon. and learned Friend may have planned to take out rather too much too soon. After all, a swing from £50 billion to £38 billion on the PSBR is a pretty massive shift. On the other hand, it may well be taking coutervailing action with regard to the money supply, because my right hon. and learned Friend persisted in the rather strange arrangements which were announced by the previous Chancellor, who confused the issue with regard to funding policy.
The Red Book states that funding policy would continue on the basis set out in the 1993–94 medium-term financial strategy, with sales of debts to banks and building societies from 1993–94 onward counting as funding in the same way as debts to other sectors. That, of course, is a complete perversion of the normal terminology. When one says something is "fully funded", one means that it is being fully funded from the non-bank sector. Therefore, what is involved is that it is being fully funded, including payments to the banks. I will not go into the usual rigmarole about printing money and so on.
It reassures me that, if my first proposition were true, my right hon. and learned Friend may have overdone the reduction in size of the PSBR or, at least, in not funding it completely. We must hope that the overall effect of those difficult matters of judgment will be to lead us to recovery without an upsurge of inflation. The forecast of 2·25 per cent. growth in non-oil GDP during the next year, against the present background of unemployment, is not a highly ambitious target.
I will say a final word, and I will finish as I began. It is important that we should look at the new procedures. It has always been the case that, at the time of the autumn statement, the House has debated both public expenditure and taxation. The same has been true in the spring. However, the Budget was not a unified Budget in the sense that any hon. Member could say that he would like to put up taxes on this or put up public expenditure on that, with the two being taken together. That is not so.
We are precluded by the rules of order and by rules about money resolutions and about Ways and Means resolutions from debating all the proposals which might be made for increasing taxation or public expenditure. The Procedure Committee's recommendations are worth while, but it is not even a unified Budget in terms of the Government. I have a strong suspicion that, when various Ministers went to my right hon. Friend the Chief Secretary or my right hon. and learned Friend the Chancellor, they did not say that they would have more money if my right hon. and learned Friend was prepared to put up tax on this or that. The Budget is not unified even within the


Government. So we are a long way from becoming a Parliament that has a properly unified Budget. There was initially a lack of consultation on the unified Budget. The consultative document was published, then we had an election and no one thought about it any more. The next thing we knew, the unified Budget was about to happen. I hope that we shall manage to get our procedures sorted out despite that and after the event, but I am not at all convinced that the arrangements that we have brought into play are ideal. We should in any event look at what the Procedure Committee has said in response to the Government's reply to its report.

Mr. Denzil Davies: I admire the ingenuity of the Government in devising new and additional taxes. I suspect that my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) is quietly admiring, too. I have to hand it to the Chancellor: the tax on commercial insurance is a first-class wheeze. I use the word "wheeze" because there was a previous Chancellor who used it—indeed, as I watched the present Chancellor presenting his Budget, I asked myself, "Who does he remind me of?", then banished the thought immediately from my mind. The tax on commercial insurance is extremely clever and opens up possibilities for next year, because, as the right hon. and learned Gentleman told us, insurance is in the exempt list attached to the sixth directive, as are financial services and consumer credit. That is because—as the right hon. Member for Worthing (Sir T. Higgins) knows better than anyone, having introduced this wretched tax—it is very difficult to impose VAT on insurance and commercial and financial services. How would we deal with inputs and costs, for example?
I congratulate the Government on the way in which they have been able to invent more and more taxes—whether on aeroplanes, cars, houses, individuals or fuel. And who knows what will happen next year; we may have VAT at 17·5 per cent. on food, domestic transport, print and water services. The Government have shown themselves to be far more ingenious than Labour Governments at increasing taxes and imposing new taxes on the British public, even though Labour is supposed to be the party that imposes taxes.
At one time, Tory Governments and Tory Chancellors defended increases in and the proliferation of indirect taxes by saying, "Ah, but we are reducing income tax. That will mean more money in the pocket and will be an incentive to business men, workers and industrialists. It will bring freedom of choice." But there is no freedom of choice when people are taxed on their homes or motor car insurance. Intellectually, therefore, the Conservatives' freedom of choice argument is fast disappearing.
The Government cannot even argue that they are reducing income tax, because they are putting it up: it has been increased in the previous Budget and again in this Budget—very cleverly, of course. Allowances are not to be indexed. When I was on the Government Benches, Lord Lawson, as he now is, would bore us night after night about how important it was to index everything. In those days, Conservative party policy was: "If it moves, index it." Now we have moved away completely from the concept of indexing allowances. Allowances now apply not against

40 per cent. but only 30 or 25 per cent.—and down to 15 per cent. in the case of mortgage tax relief. The Government have proliferated indirect taxes and created and imposed more income tax.
May I make a plea, as I did last year, on behalf of someone about whom we have all forgotten. I refer to the middle manager—the person who is a manager or technician in a small or medium-sized engineering or manufacturing firm. I realise that—with one or two exceptions—the modern Conservative party has little interest in manufacturing or engineering. Managers and technicians in smaller firms earn £40,000, £50,000 or perhaps even £60,000 a year. Above £30,000 or even less, their income is taxed at 40 per cent. That is an extraordinarily high rate of tax to charge people who, as much as anyone, are our wealth producers. It would be quite easy to reorganise the income tax system to increase the ceiling on the 30 per cent. band to —50,000. I have tabled some questions on that subject and I will not go over the ground again, but the Chancellor could perfectly well have done that.
The present system is unfair. As my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) said, we read on the front page of the Evening Standard that someone who happens to be a partner in an American merchant bank receives £1 million in bonus. What has he done to earn it, I do not know. But taxing a person who earns £1 million in bonus, wages or emoluments and someone who earns £35,000 a year working in an engineering firm at the same 40 per cent. rate is not the way to get Britain back into a position where it is producing again.

Mrs. Angela Browning: Did not the hon. Gentleman's own party's manifesto contain a specific pledge to raise the 40 per cent. band to 50 per cent.? Are not the people to whom he refers tonight the very people who would have paid more tax under Labour? Was that why Labour lost the election in 1992?

Mr. Davies: The hon. Lady is being very boring. I am advancing a proposal that I advanced last year, with which many people would agree: a 40 per cent. band that starts at £30,000 a year penalises those who produce much of this country's wealth. The old Conservative party—not the Conservative party as it is now—would have accepted that argument and I am sorry that the hon. Lady fails to see the point.
What of the Budget itself? After 14 years of Tory Government, the national balance sheet is hopelessly out of kilter. The Tory balance sheet just does not balance: the assets cannot cover the liabilities. After four Tory Governments, our assets have shrunk. They have diminished because of the squandering of North sea oil revenues, the plundering of public assets for private gain and the wholesale destruction of our manufacturing industry in the early 1980s. I will not accept any lectures about monetarism from Conservative Members: the profligate monetary policies of the mid and late-1980s have diminished this country's assets.
Our assets have also been diminished as a result of the extraordinary glorification of consumption and the consumer at the expense of production and the creation of wealth. We hear little from the modern Tory party about the creation of wealth. As the previous Chancellor of the Exchequer said the other day, we now tax capital and


income at the same rate. Capital gains and income, emoluments and receipts alike are taxed at 40 per cent. The Tory party has forgotten the difference between capital and income, just as it has forgotten the need to produce and generate wealth before starting to consume.
The Government's assets have shrunk and they cannot ćover their liabilities. One approach to the problem would be to try to rebuild assets in order to cover liabilities. But that is likely to be rather difficult because our manufacturing and engineering base has shrunk. The present Budget does not even begin to rebuild the assets. I do not know where the growth—we are told that it will be 2 to 2·5 per cent. some time next year—is expected to come from. Perhaps we will achieve 2 to 2·5 per cent. growth. If we do, I imagine that most of it will come from consumption and imports. It will certainly not come from the creation of wealth and assets. A growth rate of 2 to 2·5 per cent. will not begin to rebuild the assets on the balance sheet.
There is a hidden message in the Budget—and no doubt the Financial Secretary will deal with this when he winds up—to the effect that everything will come from the reduction in interest rates. It is 5·5 per cent. now—or is it 5 per cent.; I lose count?

The Financial Secretary to the Treasury (Mr. Stephen Dorrell): It is 5·5 per cent.

Mr. Davies: It is 5·5 per cent. now. We hear much about the reduction in interest rates, but I thought that steady Eddie was in charge of interest rates now. The Financial Secretary looks surprised, but I read it in the newspapers.

Mr. Dorrell: I looked surprised because I was remembering our debates on the subject as the Maastricht Bill was going through the House earlier this year. The right hon. Gentleman should be in no doubt that the responsibility for fixing the rate of interest rests with Ministers. Responsibility for the timing and handling of the announcement of it has been shifted to the Bank of England.

Mr. Davies: What does one say to that? One has to admire the Treasury. It does not want to give the Bank of England any more power. I do not either. But the trendies whom one reads about in the newspapers, the Select Committee in the House of Commons and the Europeans, want to give the Bank of England all the power. The Treasury is doing a marvellous job—at least in the short term—in conning the City and stemming the fashionable tide by pretending that it fixed the rate, but steady Eddie does the timing.
But what if steady Eddie does not do that for two years? Steady Eddie is a steady man and may decide that there will not be a further half per cent. cut before next November.

Mr. Dorrell: indicated dissent.

Mr. Davies: The Financial Secretary shakes his head. What can steady Eddie decide? He cannot decide anything, of course. We hope we know who decides: the Chancellor of the Exchequer and the Prime Minister.

Mr. Dorrell: indicated dissent.

Mr. Davies: The Financial Secretary has nodded, so let us forget the notion of steady Eddie deciding on the timing. I am glad to hear it.
I shall now move on—or back—to assets. The assets have shrunk and are getting smaller. They cannot be increased. What does one do with a balance sheet where the assets are going down and there are liabilities. One would have to start shrinking the liabilities. One cannot do anything else. That is all that public corporations can do. They might indulge in a bit of creative accounting—perhaps a lot in some of them—but at the end of the day one must shrink the liabilities if one cannot shrink the assets. That is the journey on which the Chancellor and the Government are embarked.
I am sorry to say that the liabilities that will bear the brunt of the shrinkage, or the jettison, will be the old, the infirm, the poor and the unemployed. They are on the liability side of the balance sheet and those liabilities will be diminished. That is the best that the Government can do.
There are three Ministers whose job it is to shrink those liabilities: the Chief Secretary to the Treasury, about whom my hon. Friend the Member for Garscadden made some interesting remarks, which I shall try to follow in a moment; the Secretary of State for Social Security; and, of course, Top Cat himself, the Chancellor of the Exchequer. They are embarked on a venture to try to shrink the liabilities and balance the budget, in a few years' time. That now seems to be the great goal, as was the European monetary system at one time. The Government apparently need something else. They need the absolutism of a balanced budget to work towards.
Those three Ministers are embarked on a journey to shrink the liabilities, get rid of the PSBR and balance the budget. Let us first take the Chief Secretary. I am sorry that he is not here, but I well understand that he has other duties. He will carry out his job—I watch him on television—with considerable zeal; the zeal of the righteous.
The Chief Secretary brings to the debate the kind of intellectual veneer that he acquired at a somewhat dotty college in the backwaters of Cambridge. But allied to that veneer of intellectualism he also brings—I see it again on television—the arrogant glint of the Castilian. He is the conquistador. He is the man who will lay about them. He will lay about them with his sword. No liability will be allowed alive on the battlefield so long as the Chief Secretary is around.
Then there is the second of the triumvirate: the Secretary of State for Social Security. He is a more complex individual. He also worships, as we have been reminded, at the shrine of the free market. That is his absolutism. In economic terms that is his totem pole. But he is no conquistador or Castilian. Perhaps he is some kind of Anglo-Catholic with a conscience and a concern. He has been left in a terrible problem. On the one hand he worships the marketplace, on the other he must try to deal with those who suffer as a result of the marketplace: the redundant; the bankrupt business man; or the unemployed.
I would say that the Secretary of State for Social Security is the priest and the Chief Secretary is the warrior philosopher. I do not know how he will cope with those contradictions. Perhaps he will remain to the end of the journey, or perhaps there will be problems for him. Perhaps we should wait for his speech at the next Conservative party conference to see whether somehow he can work out those contradictions.
Now we come to the Chancellor himself. He has one thing in common with me—we are both Members of the class of 1970. He has done rather better than I have, but I genuinely congratulate hm on his success and his forensic triumph last Tuesday. I have admired the way in which, during the 1980s, he managed to survive, indeed prosper, as a left-wing Tory during the reign of the great dictator—a bit like those members of Stalin's politburo who kept out of the dictator's way, did good works and survived.
The good work that the Chancellor of the Exchequer carried out was that he laid about the pressure groups, which no doubt earned him points with the great dictator. Many of us felt some sympathy with him for doing that. He engaged in hand-to-hand combat with the British Medical Association, the National Union of Teachers and the Police Federation. As a result of his successes, eventually he ended up at the Treasury.
The trouble with the Treasury is that it is difficult to find those devils. One does not see the British Medical Association, the National Union of Teachers or the Police Federation. Because of the long corridors, one does not see any devils, but they are there. The devils are there; the sorcerers are there. Looking at the Budget, I am sorry to say that the Chancellor has fallen for the oldest and one of the cleverest sorcerers around—the balanced budget. He has fallen for it immediately, hook line and sinker.
Now we find the Chancellor—the pragmatist; the warrior philosopher—the Chief Secretary, and the priest—the Secretary of State for Social Security—all locked together on a journey towards a balanced budget, and to jettison the liabilities. They are all in the little truck known as no turning back: the left of centre—hard centre we are now told—Chancellor and the other two who are far to the right.
I am sorry for the Chancellor. He needs the Castilian more than the Castilian needs him. It is the Chief Secretary who, in the main, will deliver the balanced budget that he needs. He needs the right wing of the Conservative party in order to deliver on the basis of his Budget.
If the Conservative party wants a balanced budget, so be it, but it is a rather foolish enterprise in which to be engaged. Governments have tried it before and, in many countries, they usually fail. If a Conservative Government want to be so foolish as to go down the road and eventually try to get to a balanced budget, so be it, but there is a price to be paid for a balanced budget.
That price should be paid by the money changers and the share dealers in the City, who are now cheering the Chancellor as they go along to collect their £1 million bonuses, as we have seen in the Evening Standard. It should not be paid by the poor, the unemployed, the infirm and those least able to do so. They will get no bonus out of the Tory Budget.

Sir Rhodes Boyson: I congratulate my right hon. and learned Friend the Chancellor on four points in his Budget. The first is help to the pensioners, about which we had arguments earlier today. It is morally right that we should cushion pensioners against the rise in the cost of fuel, for three reasons—they lived through the slump of the 1930s, they fought in the war and they have no expectation of increased incomes.
Secondly, I am glad that the Budget did not impose VAT on books and printed material. Taxes on knowledge were removed over 100 years ago, under Gladstone. My right hon. Friend the Secretary of State for Education told us today of the increased number of people going on to higher education, and that will mean a shortage of books in libraries. People on constricted incomes cannot buy books for themselves, so it is vital that universities have the right books in their libraries. I would not want a tax on books.
Thirdly, I welcome the Chancellor's intention—I trust that it will be more than an intention—over the next three years, to cut from 45 to 42·5 per cent. the amount of GDP going to Government. In a free society, 40 per cent. should be the limit. Beyond that, one becomes a collective society, irrespective of the colour of the Government, because at that stage more money goes to the Government than is healthy for Government or people.
Fourthly, as a London Member of Parliament, I welcome the green light for the extension of the Docklands light railway, which will be helpful.
Let me return to the real problem—the growth of the Government sector. Under Gladstone, to whom I have already referred, 9 per cent. of GDP went to Government. That was 110 years ago. The percentage has increased throughout the century, until under the last Labour Government it was 49 per cent. At the beginning of their time in office, the Conservative Government got it down to about 40 per cent., but now it is back up to 45 per cent. That is £5,500 for every man, woman and child in the country. In Japan, it is held at 30 per cent. In countries such as Taiwan and Hong Kong, which have a far greater growth rate, it is held down much more.
One reason why so much goes to Government is that there are more people in government. I do not wish to give an historical lecture, but the facts must be considered. In 1900, when we were the largest colonial power and controlled one quarter of the world, the great Lord Salisbury was both Prime Minister and Foreign Secretary, and he had to help him only one Minister, an Under-Secretary in the Commons.
Now that the Empire has disappeared, the Foreign Secretary has five Ministers to help him. They all seem to be busy travelling around the world, whatever it is that they are doing. In Lord Salisbury's time, there were only 17 Ministers outside the Cabinet—36 Ministers in all. Now, there are two to three times that number.
More Ministers means more offices. They will want to do more things, there will be more legislation and more money must be poured into Government. The best thing to do is cut the number of Ministers. Business has survived only by cutting costs. If the Government really intend to cut Government provision, they should, as an example to the country, dismiss some Ministers. It would be rash to suggest that 20 should go over the next month, but the number must be cut.
The more Ministers we have, the more people there are in the Executive, the less that Back Benchers can challenge the Executive, and the more that the Government, irrespective of colour, can get away with what they are doing. That is unhealthy. The Chamber was created to challenge the Executive powers of the Crown. At the moment, there are few of us left to challenge the Executive. Too many are concerned about becoming a Minister at some point.
The Government may ask my advice on how that should be done. I have a solution, which I am sure will appeal to hon. Members.
I listened carefully to my right hon. Friend the Secretary of State for Education. He has invented league tables. I believe in them. There should be evidence of what is being done, so that the results from one school can be compared with those from another. One can then see what is happening and learn why.
The Government should have league tables for all Departments, and possibly a year without any legislation, which would be healthy, and instead have debates about what the House should be about and the way that the country should be going. Every three months, a league table could be published showing how much money had been saved in each Department, and by how many the staff numbers had been cut.
Furthermore, now that civil servants are getting honours based on merit, a number of knighthoods in the honours list could depend on how many people each head of Department had been able to dispense with, and how much money had been saved. That could transform the country. I give that idea free to the Minister. The leap should come not from the bottom but from the top.
I am not asking for any more money for London. I just want money moved from one pocket to another, because the money is there. [Interruption.] I must not reply to seated interventions. I shall say only that I would expect even the hon. Member for Leicester, East (Mr. Vaz), a non-London Member, to approve of and support me in the London matter with which I am dealing.

Mr. Keith Vaz: I live in London, in Brent.

Sir Rhodes Boyson: I am astonished and honoured. I shall expect support for what I am saying from at least one Labour Front Bencher.

Mr. Vaz: I live in the London borough of Brent. Perhaps the right hon. Gentleman can tell me how it is that the Conservative-controlled borough finds so much difficulty in emptying the dustbins in Teignmouth road.

Sir Rhodes Boyson: I have a simple solution for the hon. Gentleman. If he moves to Brent, North, I will ensure that the dustbins are emptied night and day. At 3 o'clock in the morning, the cart will rattle along. The offer is there to the hon. Gentleman if he wishes to take it up.
I am concerned about the state of the London Underground. It has become dangerous, difficult and a threat to safety. Some parts are 100 years old. The cables on the Central line, which caused so much trouble recently, are 70 years old. Some of the signals are 40 years old. Travelling today on a route that I had travelled last week at the same time, I saw that an escalator had still not been repaired. That is not far from here. One sees old people trying to struggle up escalators that are not working. This is the capital of the country. This is one of the five great cities of the world.
Having lived more of my life in London than in my native Lancashire, I can say on behalf of myself and of my constituents that there is a desperate need for investment in the underground system. I prefer that to concreting over the country, with county after county being destroyed by road building. If £2 billion or £3 billion of the money for roads

were put into London, much could be improved. Without it, London will not be the capital we want it to be, with tourists coming in all the time. That is an important point.
I have three points with which to end—three is a good number; it is like the holy trinity, so no doubt I will get the support of the House for what I have to say—two of which are non-party political.
This afternoon, my right hon. Friend the Secretary of State for Education mentioned the need to reintroduce apprenticeships. Germany has 700,000 apprentices, one third of whom complete their apprenticeships before they enter university. They can therefore both manufacture and design. We have no equivalent.
The strength of an apprenticeship was that the pupil was linked to a craftsman, who served as a father figure. The problem with a boy in a one-parent family is the lack of a mature male figure as a model. If apprenticeships are reintroduced, they must involve fine journeymen, and apprentices will take their patterns of behaviour from their tutors—whereas, at present, many young people adopt the behaviour patterns of the running gang. I commend to my right hon. Friend the Secretary of State apprenticeships that assign the apprentice to an individual. That will do more for law and order among young people than anything else.
I am not over-excited about the immediate improvement in the number of young people entering higher education. I believe that a lot of that is because young people cannot get jobs. In any event, much of it is not higher education but longer education. One can keep people in schools until they are 60. A more important question is what education is provided and the speed with which it is accomplished.
I am not against a loans system, but we must be fair and ensure that students have enough money to complete their education. If not, there will be an aggrieved minority in universities who may prove troublesome—not while they are there but when they leave—irrespective of the Government.
Twenty per cent. of students should be given a full higher education grant—those with starred As.

Ms Hilary Armstrong: indicated dissent.

Sir Rhodes Boyson: They are the students who keep learning alive. There is no point to long-term education of the kind that the hon. Lady favours.
Such university students would do something for the country, as well as for themselves. The top 10 per cent. or 20 per cent. of students should receive full scholarships.

Mr. Vaz: State scholarships?

Sir Rhodes Boyson: Yes, state scholarships—a full grant, with all the costs of teaching paid. That was done in the 1930s, with a mixture of the two. Such students could read whatever they wanted, because they are the students who keep learning alive.
The other 80 or 90 per cent. could be subject to a full loan system. They should be asked, "Do you really want to go, or is it that you cannot get off that escalator? You had better go for something that will pay for your bread and butter later, so that you can pay back that loan." I refer to students on vocational courses, for which there is a desperate need thoughout the country.
Men and women sit on a three-legged stool. If one leg falls off, something goes wrong with society. One leg is


religion. One does not need to be religious, but one must have a view of life and what it is about. The second leg is social—the ability to work with people as a unit. The third is economic. If one gets those three legs right, society is right.
One element of the Budget knocks one of those legs away, with the cut in the married couple's allowance. The family is under desperate attack, and we must revive it. It may make economic sense to cut that allowance, but it does not make sense in terms of society. Unless we rebuild the family structure, the future will be worse, whatever we may do in material terms.
It should be the policy of any Government to check whether their future actions help the family. I appeal to the Government to change their mind and to ensure that the family is helped in every possible way.

Mr. Don Foster: I listened with considerable interest to the right hon. Members for Brent, North (Sir R. Boyson) and for Worthing (Sir T. Higgins). The Financial Secretary will doubtless reflect that, among today's many speeches, only that of the Secretary of State for Education seemed to support the Budget.
An increasing number of Conservative Members may share my view that the Budget was like over-indulging in cheap champagne. When it was presented, Tory Back Benchers hailed the Chancellor of the Exchequer's champagne performance, but we are beginning to see the after-effects and hangover caused by the right hon. and learned Gentleman's statement. In recent days, there has been revelation after revelation that the Budget will in no way tackle the real problems confronting this country, but that it has created a large number of hardships.
Most notably, the Budget fails to tackle the urgent need to return people to employment. We heard recently of the desperate concern of the Secretary of State for Social Security to reduce spending on social security benefits. He could achieve that not in the way done in the Budget—a shameful reduction in the availability of unemployment benefit—but by getting more people back to work through a Budget that invests in the economy.
It would be churlish not to acknowledge that the Budget contains some positive elements. I welcome the modest move towards establishing child care allowances. As the hon. Member for Glasgow, Garscadden (Mr. Dewar) said, that measure does not go far enough, but it makes a welcome start. I applaud also the proposals to support small businesses, and the belated recognition that work must be done on introducing measures that support small businesses that suffer as a result of the late payment of debt.

Mr. Nigel Forman: Does the hon. Gentleman realise that the two points that he just made are closely linked? He alleges that the Budget will not help employment prospects, but the package of measures for small businesses includes a 1 per cent. reduction in employers' national insurance contributions in respect of employees earning less than £200 a week—which is one of the best examples of the way in which the Budget will help to create future jobs.

Mr. Foster: I made the point that some Budget measures make improvements. I acknowledge that those two proposals combined will make a small contribution to improving job opportunities. A third creates further job opportunities, in a small way. The increased investment, albeit modest, in the energy efficiency scheme will create some additional jobs.
However, although those measures are welcome, they are insufficient. Sadly, I must share the view expressed by the right hon. Member for Worthing—

Mr. Richard Ottaway: The hon. Gentleman speaks of modest measures, so why is it that every small business group in this country gave them an overwhelming welcome?

Mr. Foster: I welcome them, but I would like them to go further. The Government have not acknowledged that small businesses will be the engine room of recovery and the source of the vast number of new jobs that must be created. If the hon. Gentleman will join in my call for a real cut in the uniform business rate, which is desperately needed, and for the removal of one-way rent reviews, I would be delighted to have his support.

Mr. Ottaway: The hon. Gentleman will. know that I introduced a ten-minute rule Bill calling for just such a measure on upward-only rent review clauses.

Mr. Foster: I was not aware that the hon. Member had done that. I give my full support to his proposal.
The right hon. Member for Worthing talked about the fears that had been raised before the Budget. I very much share his concern about the way in which the matter was handled, and about the lingering problem that raising those fears has created.
Hon. Members on both sides of the House probably now acknowledge that investment in education is crucial. The question, therefore, is the level of investment and how it should be used. Liberal Democrats have long argued for the need significantly to increase investment in education. At the last general election, we were honest enough to tell the electorate what that increased spending would be and where the money would come from.
We said that we would spend further money on starting to tackle the backlog of repair and maintenance work in our educational establishments. We were delighted that that view was supported by a recent report from the National Commission on Education. We continue to make that pledge, in a desire to ensure that there is increased investment in education.
Sadly, however, despite what the Secretary of State said about the importance of investment in human capital, the Budget does not propose the significant investment that is needed. Indeed, I am disappointed that much of the information provided about the Budget and the subsequent statements has tended to hide the lack of investment it proposes.
The largest failure of investment in the Budget is the failure to invest in nursery education. The right hon. Member for Brent, North referred to the need for increased jobs. The Library estimates that the provision of nursery education for all three and four-year-olds whose parents wanted it would create an additional 40,000 jobs. Furthermore, as recent reports have shown, that would be not only a sound educational investment but a sound


financial investment, because evidence shows that expenditure on nursery education produces a net financial benefit to the nation.
It is important that both sides of the House agree on the number of children who would be involved. The Secretary of State told the House today that more than 50 per cent. óf children were in nursery education. The Library has prepared a detailed briefing for me on those figures, which does not confirm what he said. It says that 26 per cent. of three and four-year-olds in England attend nursery schools or nursery classes in maintained primary schools. I understand where the Secretary of State obtained his figures. He has added the 20 odd per cent. of three and four-year-olds who attend infant classes in primary schools to that 26 per cent. That is different from true nursery provision. It is important that the House debates the true statistics.

Mr. Dorrell: Is the hon. Gentleman really saying that he is against infant education?

Mr. Foster: The Financial Secretary may find the briefings interesting. The evidence is now clear, and certainly growing, that nursery education for three and four-year-olds is far preferable to the early introduction of rising-fives into reception classes.

Ms Armstrong: The Financial Secretary might be assisted by reading the recent inspectors' report on problems in primary schools. One of the most serious difficulties it identified was the number of four-year-olds who are not gaining nursery experience, because of the lack of appropriate equipment, of the appropriate staff ratios or of appropriately trained staff to lead them into infant education. There is a difference between nursery education and reception classes, and the Government will have to address it.

Mr. Foster: I am grateful for that intervention.
I am sure that the Financial Secretary will now be willing to consider the issues in detail. Knowing his interest in finance as well as education, I hope that he will carefully consider the recent research, which shows that not only an educational benefit but a financial benefit can accrue to the nation from investment in nursery education.
It would be wrong to deny that some increased money has been made available to the Department for Education and Ofsted. Unfortunately, the vast majority of it will be swallowed up in ways that will not improve the quality of education. For example, quite a lot of it will go to further feather-bed grant-maintained schools.
I draw attention to the rather strange phrase that the Secretary of State has coined. He now calls grant-maintained schools "self-governing schools", despite the fact that his own legislation—the Education Reform Act 1988 and the Education Act 1993—specifically state that such schools shall be called grant-maintained schools. Windscale's name was changed to Sellafield because it had become so unpopular that a way had to be found around it. Many hon. Members are aware that grant-maintained schools are beginning to be a very unpopular part of the education service.
Of the increased money, some—albeit a modest amount—will go to higher education. That is hardly surprising, given the rapid and large expansion in the number of students in higher education, about which the Secretary of State boasted yet again today. He said that that expansion

was the equivalent of 12 new universities, yet when I asked him only eight or nine days ago to tell me whether the equivalent amount of capital investment that would be needed for 12 new universities had been made available, he did not respond. He failed to do so because of the Government's embarrassment at the growing backlog of repair and maintenance in our higher education institutions, the increased overcrowding of students and the many other problems in higher education which have resulted from their failure to invest in expanding education.
Despite the modest increase in expenditure on higher education, the growing drop-out problem remains. One in eight of our university students—the highest number ever—are dropping out of higher education, and the morale of staff is at an all-time low. As the right hon. Member for Brent, North said, students in higher education are now having difficulty even in getting the books that they require.
Students have suffered in other ways from the Budget. The cut in grant, matched of course by the increase in loans, has betrayed the earlier agreements to phase in the change from grant to loan much more slowly. The Government said that the introduction of loans has in no way affected the number of students entering higher education and, to judge from the speeding up on that process, it certainly appears that they want to test that thesis to destruction. According to documents that are alleged to have been stolen, it now appears that we have on the agenda the possibility of students also being required to pay some of their fees. I hope that time will be found as soon as possible to debate these issues.
It was wrong to suggest that many students in higher and further education can take advantage of discretionary awards. As most hon. Members will know, the availability of discretionary awards has been significantly reduced across the country in recent years, as the squeeze on local government finances continues.
As I said, some money has been made available for education, but it is rather like the magician's card trick—one can see the cards in his hand but one does not know what cards are up his sleeve. Since Budget day, more information about what was up the sleeve has been revealed, but on Budget day itself, and in the first few days after it, many people were misled.
Even The Daily Telegraph managed to miss the subtle irony of having the following two statements on its front page. The first said:
Overall, Government spending on education in a very demanding public expenditure round will increase next year by 2·7 per cent in real terms.
However, on the same page, a second statement read:
Local councils in England were told last night that they face cuts in services and job losses next year as a result of the Chancellor's decision to limit the growth in their cash spending to 2·3 per cent.
If we are going to discuss educational expenditure, we must consider the money given directly to the DFE and Ofsted, and that available to local government. It then becomes clear that the squeeze on local government funds will mean that local education authorities will have to make further cuts in expenditure in the next 12 months, and that very few will be able to improve the level or quality of their services.
The Secretary of State for Education proudly boasted that spending on individual pupils has increased significantly since 1979. I think that he quoted a figure in


excess of 40 per cent. Such a claim has been made many times in the House, and I thought it important to have that figure checked.
I have here a detailed brief prepared by the Library which examines the claim of increased expenditure. The brief shows clearly that, if one takes account of appropriate education price deflators and the changes in pupil numbers, the total increase in resources is not 40–odd per cent. but just 2 per cent. It also reveals that there has been a fall in real terms in spending on secondary education, and that spending on further education, about which the Secretary of State boasted so proudly only a couple of hours ago, has fallen by some 22 per cent.
From the total money made available to the DFE and Ofsted and the effective reductions in expenditure to local government, it is clear that the Budget does not provide the desperately needed investment for our education service. I can do no better than end by citing an editorial in the magazine Education:
Sweet words do not soothe the acts of fiscal brutality contained in this week's announcement. True, the battered State service continues to survive. But let's not get too excited. More than ever, the contents of the Whitehall honey pot begin to taste increasingly bitter.

Sir Peter Hordern: In the Financial Times on Saturday, there was an interesting review of Mr. Alfred Malabre's book entitled "Lost Prophets", which deals with the uselessness of economists. Mr. Malabre, who has been reporting for the Wall Street Journal for the past 35 years, said in his book that in 1958 the Wall Street Journal employed no economists; nor did Salomon Brothers or any of the principal banks in the United States. At that time, the economy in the United States and Europe, including the United Kingdom, did very well.
With the use of computers and high-powered mathematics, the economics profession has created an aura of scientific competence and has produced various theories of which right hon. and hon. Members will be aware—Keynesianism, monetarism and even supply-side economics, which is the daft way of cutting taxes so much that growth would occur and eventually create its own revenue. Mr. Malabre states that Keynes had no effect on the United States until Kennedy in the 1960s and that "demand management" came to mean inflation plus budget deficits. Very much the same has occurred in this country.
The hon. Member for Motherwell, South (Dr. Bray) inserted a clause in the Industry (Amendment) Act 1976, which insisted on the Government making an economic forecast. That forecast has been included in the Red Book ever since. The seven so-called wise men, who are economists appointed to the Government, have their views printed in the Red Book, which gives them some sort of status as though they were official advisers to the Government and had some powers of economic forecast not available to ordinary men. I believe that it is ludicrous to place such weight on these forecasts.
One begins with an absolute certainty, which is the amount of money one owes—£50 billion—and then, by sleight of hand, one arrives at the rate of growth necessary to fulfil that deficit. In two years' time, it turns out to be a rate of growth of 3 per cent. I very much hope that we shall get there, but I applaud the admirable determination of the

Treasury to bring down the deficit. That is by far the best contribution that the Government could make to the economy.
I said at the time of the Budget that the £50 billion deficit was in any case too large. It should have been reduced in the previous Budget to about £38 billion and we should have applied value added tax to fuel and power much earlier—in April—together with the various offsets and the social security relief which have now been announced. As it was, for some time we had all the pain of the most unpopular tax without any of revenue. That cannot have been a good thing. It shows that fine tuning is a greatly exaggerated art.
We should be aware of the substantial international flows of money, such as those that occurred during the exchange rate mechanism debacle. We must recognise the fact that not only can large sums of money be shifted around the world very quickly but the people who shift them look carefully at the public sector deficits of each country.
I was surprised to learn that in Germany the share of interest in total public spending is likely to rise from 11 per cent. in 1989 to 16 per cent. in 1994 and to 23 per cent. in 1997. No country in Europe can afford to neglect its public sector finances and every country has to seek to reduce its deficits. That is the practical truth of the matter. We cannot simply go it alone, either, in exchange rate policy without cost if we expect foreigners to finance our deficit.
Since 1985, the sterling index has fallen to 81 from 100 and that has meant that our long-term 10-year bonds, which have been issued, have to bear a penalty of about 1 per cent. compared with German bonds. In every respect, the best way is to reduce the amount that one has to borrow and thus to become less dependent on overseas markets.
The position now is very different from what it was years ago, when we could with some comfort declare what the Budget was going to be and look upon settling our own Budget quite comfortably within our resources. Every country now is susceptible to the winds of fortune; to large sums of money being shifted from one country to another at the press of a button. It is not possible to engage in domestic economic policies without paying any care or attention to that phenomenon. It is a very important factor. We are, in that respect, all interdependent rather than being able to address ourselves, as we would no doubt like to do, to the importance of arriving at a correct national Budget.
With that in mind, I would also like to follow what my right hon. Friend the Member for Worthing (Sir T. Higgins) said about the funding. I mentioned that the last time that it was produced in the Budget. I notice that my right hon. Friend proposes to issue £7 billion-worth fewer gilts to the non-bank public. I am old-fashioned enough to think that that means issuing £7 billion to the banks, which will act as the base from which they can lend in future. That is no bad thing at the moment because we are well below our productive capacity and I see no strain on inflation at the moment, but the danger will arise in two years' time, when we achieve the 3 per cent. growth that we all wish to see. I notice that the Financial Secretary is paying close attention to that matter and I wish to put it on record that I think that printing money is a most dangerous development. It has served us no good in the past and it is a mistake.
Some very interesting things come out of the Budget statement, not least that in the Hansard of the same day the hon. Member for Hartlepool (Mr. Mandelson)—I am sorry


that he is not in his place—tabled a most interesting question. It appears from the answer that the top 10 per cent. of the population now pay three times as much tax as the bottom 50 per cent., whereas 14 years ago they paid rather less than twice. I am grateful to the hon. Gentleman for asking that question because it shows, better than any Conservative Member could have done, the benefits of low rates of taxation on direct income. I hope that the hon. Gentleman asks many more.
As it happened, in the same volume of Hansard, there was a question about capital gains tax. I am glad that my hon. Friend the Financial Secretary is in his place because the yield of the capital gains tax in 1988–89 was about £2·3 billion; in 1992–93 it was £980 million. That is substantially less than half. In 1988–89, 155,000 people paid capital gains tax; 85,000 paid it last year. That is a serious case of declining revenue. The capital gains tax is taking on more of the character of the development land tax, which, as some of my right hon. and hon. Friends remember, was imposed by the last Labour Government and had to be dropped because it simply brought in no revenue.
I have to tell my right hon. and hon. Friends that the question of capital gains tax is now serious. It is producing less and less revenue and it is clear that the rate of tax is entirely inappropriate. It seems tragic that it brings in less than £1 billion in revenue at a time when the markets are reporting increases in capital values of several billion pounds a day. It is missing all the revenue that it could get if it had a substantially lower rate of tax.
Suppose, for example, the rate of tax were 15 per cent. Assets would be exchanged freely and the Government would get substantially more revenue. I know what the argument is. It is the old Inland Revenue argument about people converting income into capital. We have to recognise the most important point about revenue, which is that one should get as much revenue out of taxation as one can and not impose dotty levels, which fail to get the revenue which is so badly required.
I shall say one last word about public spending. It has long been my view that the state should not indulge in unnecessary activity. Therefore, the Department of Employment should be scrapped altogether and its functions divided between Education and Training, and Social Security for the unemployment benefit.
I do not know whether my right hon. and learned Friend has seen the figures—my right hon. Friend the Member for Worthing and I have seen them—showing that the reform of local government will cost £1 billion when all the dispositions have been made.

Sir Terence Higgins: Much more.

Sir Peter Hordern: My right hon. Friend says much more. I never disagree with my right hon. Friend and in this case I certainly do not.
We cannot afford £1 billion and in the case of West Sussex the reform is unasked for, quite unnecessary and an absurd waste of time. Of course, I realise that it is necessary to do away with Humberside and Avon and all those ridiculous authorities, but in West Sussex we require no change and it is a total waste of money. We should stop it.

Mr. Straw: The hon. Gentleman can correct me if I am wrong, but I believe that he was in the House between 1970 and 1974 and voted, with the current Secretary of State for

the Environment, for the local government changes that created Avon and Humberside. Did he vote against them and speak out against them at the time?

Sir Peter Hordern: I am grateful to the hon. Gentleman. I was voting for West Sussex, which I thought was excellent. I do not really know about those other parts of the country, which I seldom visit. I naturally thought that those were the names that they wished to have.

Sir Terence Higgins: People in the Treasury at the time were desperately worried about the cost.

Sir Peter Hordern: In my experience, any reform of local government or of the health service always ends in disaster in terms of extra expense and more administrators and we do better to leave well alone.
I commend my right hon. and learned Friend's approach. It seems to me that his approach to good house-keeping is essential. He comes with no economic or econometric baggage. It is a good, practical Budget, which deserves the support that it is getting.

Mr. Deputy Speaker (Mr. Michael Morris): Order. Madam Speaker has ruled that speeches from now until 9 o'clock shall be no longer than 10 minutes.

Mr. Mike Watson: It is now six days since the Chancellor delivered what he described as a "no nonsense Budget". In the intervening period and over the weekend, it was often difficult to reconcile reports by the various pundits on the Chancellor's speech with the comments that I heard from people in my constituency, most of whom were greatly concerned at the effects of the Budget. I read with interest the words of Ms. Bronwyn Curtis, chief economist with the Deutsche Bank, who commented:
the cuts in spending make it as painless as possible for the voters
as if "the voters" were a heterogeneous group who all feel the same amount of pain right across the board. That is nonsense.
Tell that to any of the three million people who are without a job at the moment—and their families—who will see their unemployment benefit replaced by the profoundly, I think, insultingly titled job seeker's allowance. It is not the name change that will concern them most, however; it is the fact that the payment is to be cut in half and restricted to a mere six months. I come into contact all too often with people who have been denied work and none of them—not one—wants to claim unemployment benefit for any more than six days, far less six months. Implicit in the new allowance is the suggestion that many people do—that is assuming that they can get round the already oppressive "actively seeking work" conditions that are applied under the present regime.
The proposal is also dishonest, because people in work, as we all do, pay taxes, a proportion of which is to sustain them, should they be unfortunate enough to find themselves unemployed. Now, from 1996, someone who loses his or her job will be denied half the benefits for which he or she has been paying for, perhaps, 20 years or more. If an insurance company tried the same thing on us, we would describe it as a con trick and immediately phone our solicitors. I do not believe that the Government should be allowed to get away with the same thing: it is legalised robbery. A no-nonsense Budget? I think not.
Another gung-ho pundit who seemed to like the Budget was Professor David Currie of the London Business School, who described it as "politically highly astute", and said that the Chancellor had "skilfully defused" the household VAT row. These people seem to be wholly divorced from reality. I do not know what Professor Currie's domestic heating bills amount to, but we can be sure that an additional 8 per cent. or 17·5 per cent. will not cause him to lose much sleep—or much heat. If he and Ministers believe that the issue has been skilfully defused just because Tory Back Benchers—cheaply as ever—have been bought off, they should think again. Many of us see this as a campaign that must and will continue.
The derisory 50p or 70p for pensioner couples will meet half the anticipated increase in heating costs. That is of course woefully inadequate; but what about low-income families who will not qualify for any help at all? For them, the issue has certainly not been defused. It is all too real.
The stark fact arising from the cruel imposition of VAT on domestic fuel is that people will die as a result. I am not being dramatic. The Government may contest the figures, but they cannot dispute the fact that VAT on fuel is a killer tax. Statistics show that over the past eight years there have been 35,000 so-called "excess winter deaths" throughout the United Kingdom. That refers to deaths between January and March as compared with the period from July to September. Between 1975 and 1985 about 40,000 such deaths occurred, so a decline in the numbers had begun and the suffering had begun to be alleviated.
VAT on fuel, it has been estimated by a wide variety of agencies, will reverse this trend and send the figures sharply upwards again. This is no startling revelation, but the fact is that cold kills. The Government, however, seem prepared to brush aside that fact in their desperation to cut their massive budget deficit. Their motto seems to be that they will impose cuts where they can be least resisted and to hell with the consequences.
I do not raise this issue lightly or use the term "killer tax" lightly, but the evidence is clear and unequivocal. An organisation known as the campaign for cold weather credits is based in my constituency and campaigns throughout Scotland on behalf of the old and the poor. It has carried out research throughout Britain and its revelations are startling:
People on a low income have difficulty keeping adequately warm on their present incomes. If there is an increase in the cost of keeping warm, for instance, because the weather is colder than usual, these households cannot increase their expenditure to compensate. They get colder, their health is put at risk and more will die. The imposition of VAT on domestic energy will have the same effect. An 8 per cent. increase in VAT will cause an extra 5,000 deaths per annum. A 17·5 per cent. increase in VAT will cause an extra 10,000 deaths per annum. In both cases, the imposition of VAT will cause more deaths than occur on the roads each year (approximately 5,000).
Even if we reduce these horrifying statistics by 40 per cent. to take account of the offsetting 50p or 70p payments, the imposition of VAT on fuel will result in thousands of excess deaths each year.
I challenge the Chief Secretary or the Financial Secretary to deny this. Perhaps they have simply accepted the fact that those deaths will represent a reduced burden on the state and further savings to be set against the £50

billion deficit. I should like to hear how they and their colleagues justify the move. In any case, they should not imagine that the fight against this callous tax is over.
Moreover, we should not forget the effects on low income families of the taxing of the vastly reduced new form of invalidity benefit, the increasing of the state retirement age for women to 65, and the adding of 3 per cent. to insurance premiums—this last is a punitive tax for many of the poorer neighbourhoods in Scotland such as Glasgow, Central, where only about 40 per cent. of homes are insured already. The change will hardly be an inducement to increase insurance.
There are to be grant reductions to local authorities, with consequent damage to—already inadequate—house building and house repairing programmes.
Leaving aside the question whether taxing and spending have been balanced in the Budget, the bottom line is that the average family will be £10 a week worse off next April and £16 a week worse off from April 1995. These people, the victims of the Government's economic incompetence, have been pressed into service in an attempt to bail them out.
I want to take up an aspect of the Budget referred to today by the Education Secretary. It will have a serious effect on many of my constituents, about 17,000 of whom study at Strathclyde or Glasgow Caledonian university. Already, the student grant, plus a loan, amounts to less than they would get on income support and of course they are no longer entitled to benefit. The announcement of a 10 per cent. cut in student grant in each of the next three years came as a body blow to many of them, as they told me last weekend. The fact that the size of the loans available will be sharply increased in no way compensates. Most students do not want to end their studies thousands of pounds in debt. Why should they be expected to do so? By 1997, on Government plans, the amount owed by a student who has completed his or her course, taking out loans throughout it, will be almost £5,000—plus another £1,000 in Scotland, where a typical honours degree takes four years.
Too many students, it would seem, are gaining entry to our universities. In other countries, they welcome that and provide resources commensurate with it. This Government, however, are attempting to halt the expansion of higher education by making it financially unattractive to go to university. What a way to run an education system. The changes will effectively reduce the number of students entering higher education and will unfortunately mean turning the clock back, with the effect that students from social classes 1 and 2 will dominate at the expense of those from poorer families. That is not what the Government claim to want, but it will be the effect. On top of all this, the widely leaked announcement that student fees are to be charged from next year represented more nonsense from a "no nonsense" Budget.
I would like to close with a brief statement on a subject that I have not heard raised so far—the bad news for the aid budget for developing countries. The freeze announced last year has been confirmed and it will mean real cuts over the next three years of about 10 per cent. At the same time, aid to eastern and central Europe has increased by about 23 per cent. this year and will increase by 19 per cent. in each of the next two years.
The importance of aid to developing economies is not in doubt, but it obscures the fact that there is a continuing transfer of our aid away from long-term development assistance to the poorest countries and towards the


promotion of Thatcherite values and market economics in the former Soviet Union and its neighbours. There is a depressing parallel here with benefit reductions for this country in the Budget, a sinister sort of consistency: the Government are prepared to hit the world's poor just as hard as they hit the poor in Britain.
This has been a bad week and a bad Budget for the poor, not only at home but around the world. The Government's spending and taxing plans only hold out the promise that there is worse to come.

Mr. Nicholas Winterton: It was with mixed emotions that I listened to the Budget delivered by my right hon. and learned Friend and, despite the surge in the City, it is with very mixed feelings that the Budget has been received by the construction industry and the manufacturing sector of our economy.
As chairman of the Manufacturing and Construction Industries Alliance, launched in the House earlier this year with the support of colleagues of all parties and with welcomes from the Prime Minister and leaders of Opposition parties, I am sensitive to the needs of construction and manufacturing, and it is clear to me from my extensive contacts with industry that where the Chancellor failed in his Budget was in dealing with the fact that UK Ltd. needs a clear economic strategy for growth—and we do not have one.
The Budget provided some elements for such a strategy, but no really coherent explanation of just how we would achieve even the depressingly low 2·5 per cent. growth a year. The problem that we face is not merely one of controlling public finances and balancing the books. That, at the very most, is a by-product; it cannot be considered a substitute for a real economic and industrial strategy.
Similarly, tax increases and cuts in public expenditure, especially on roads, housing and other badly needed infrastructure projects, do not amount to a strategy. Our underlying problems of high unemployment, budget deficit and weak growth can be tackled only by a much more positive and constructive approach, by a positive programme of measures that focuses upon and maximises the opportunities that are currently open to the United Kingdom.
There is a world recession, and the United Kingdom cannot expect to achieve high growth when Japan, the United States and Germany are at various stages in a long recession. But it is possible to identify some bright spots and to make some reasonable assumptions about where opportunities will and will not be found over the next five years. That is precisely what President Clinton did two weeks ago at his summit with leaders of the economies of the far east. He identified the current economic power and the future economic potential of Japan, China, Taiwan, Korea and Malaysia which, together with the United States, make the Pacific the key focus for the 21st century.
The North American free trade agreement will undoubtedly in due course extend to much more of Latin America beyond Mexico, and a new fulcrum of world trade is emerging. The main economic players are sizing each other up and shifting their footing for the best possible position to take advantage of world markets. Unless we are careful, the United Kingdom will not even be in the ring with them.
In stark contrast, I shall now turn to the dull, gloomy and sorry spectacle of Europe to which our political and economic strategies seek to wed us. I welcome the Chancellor's strictures on Europe and his commitment to the conclusion of the GATT round, on which he has my support, but he did not tell us how he intends to deregulate Europe. The price of reunification, on top of Germany's burgeoning and inefficient bureaucracy, feather-bedded labour force and high social and production costs, has meant that Germany is no longer the economic heartbeat of Europe. It is approaching the economic equivalent of a cardiac arrest.
Through its foolish attachment to the franc fort and its pretence that the ERM is still alive, France is condemning itself to the same coronary care unit as Germany for some years to come. By its continued policies of forcing through monetary and economic union, social and other legislation—despite the determined efforts of my right hon. Friend the Prime Minister to persuade it otherwise—the European Community will price itself out of world markets and become an inward-looking and ultimately second-rate trading area.
Europe is over-regulated. It has high costs and it is uncompetitive, recession ridden and economically short sighted. However, there is still hope, because our membership of the European Community does not preclude us from competing for our share of those world markets which either are still growing or which may be expected rapidly to do so in the next five years. Thus, our economic strategy must be to provide the United Kingdom with an alternative to being able to trade only within the European Community so that we are able to seize an increasing share of world markets. Sadly, that strategy was lacking in my right hon. and learned Friend's Budget.
Europhiles who constantly pretend that there is no alternative to Europe should look at the real world and acknowledge the collapse of their fantasy. They should look at what the United States Administration clearly see, which is that alternatives are difficult to miss, not hard to find. The alternative strategy that the Chancellor should adopt for United Kingdom Ltd. has two key features, one of which has been started but not adequately explained by Ministers. It is deregulation, and I welcome the measures on national insurance and PAYE that the Chancellor announced. The second feature, interest rate reductions, has started by default, but has not yet gone far enough.
Deregulation recognises that drastic action to reduce the costs of British industry is essential to make us competitive. In the 1980s, reform of the trade unions and our labour relations legislation put in place new levels of cost efficiency. We must now proceed to reduce the cost of over-regulation and bureaucracy, which are a colossal millstone of overheads for every company, especially small businesses. The Prime Minister has announced initiatives to do that and a Bill will be introduced to repeal redundant regulations. That is welcome, but the exercise must be carried out rigorously and without delay, and all new United Kingdom and EC legislation must be subject to extensive new scrutiny to establish accurately not only compliance costs but whether legislation is in proportion to the problem that it claims to address.
If Britain is to become an internationally competitive nation selling to countries on the Pacific rim and to the United States and India and others, we must keep our unit costs down and resist expensive and unnecessary legislative burdens that will merely lengthen dole queues.
The second requirement for recovery is a competitive currency. Although the Government have been forced to reduce interest rates and let sterling fall, they have not gone far enough. Lower interest rates are urgently needed to reduce domestic costs, stimulate investment and underpin growth, force down the value of the pound and give our exporters an advantage in growth markets. That will produce higher United Kingdom growth than we currently enjoy, perhaps 3 to 3·5 per cent. after 12 to 18 months rather than the dismal 1·75 to 2·5 per cent. predicted by the Chancellor. That is the correct way to deal with the PSBR. It should not be dealt with by cuts in necessary public investment or by tax increases that will depress our economy.
Britain has a hell of a problem to face after 1 April next year. Some people in the Treasury and the Bank of England claim that my proposal is inflationary. They are totally wrong, and their obsession with inflation, which is rooted in outdated social and market conditions that no longer apply, threatens our economic recovery. I am sorry to note that Mr. Eddie George will apparently have too much say in future about the timing of interest rate changes. He is so far gone in his obsession with inflation that no longer exists that he is himself one of the largest single obstacles to the development of a coherent economic strategy and economic growth.
The Chancellor must personally accept full responsibility for a positive strategy for growth that will enable Britain to become a world trading nation, and he must make the necessary decisions on both actions and timing. In a matter of weeks, not months, interest rates should come down to between 3 and 4 per cent. Such a reduction was the centrepiece that the Budget lacked.
A Government who reduce our cost base and keep our currency competitive may truly hope to win the approval of industry and the support of our people at the next general election. The Government may also expect British industry to rise with relish to the new opportunities that will be presented by such a strategy for growth and prosperity.

Mr. Deputy Speaker (Mr. Michael Morris): Order. The hon. Gentleman is out of time. I call Ms Armstrong.

Ms Hilary Armstrong: Opposition support for much of what the hon. Member for Macclesfield (Mr. Winterton) said was such that I did not hear my name called. I agreed especially with the early part of the hon. Gentleman's speech in which he declared that the Budget had no overall strategy for dealing with the long-term problems of the economy or for investing in the future of industry and the industrial base. Such a strategy is desperately needed.
The Budget continued to perpetrate the Government fraud on the British people. Before the election, the Government decried taxation and said that any increase would fundamentally undermine the economy, but every year since the election taxes have been unfairly increased. The Chancellor did nothing to remove VAT on fuel, a regressive and punitive tax on those who have little opportunity to increase their income. They will be heavily punished by the tax.
The Budget ensured that ordinary families, many of them struggling to maintain the standard of living they

began to expect during the 1980s, will be the people who will pay more tax and get less. They will pay the price for the mistakes and the fraud of the Government. Many of them are already paying that price. The middle income earners will be badly hit. As my hon. Friend the Member for Glasgow, Central (Mr. Watson) said, a typical family's tax bill will rise by £10 a week next year and by £16 a week in 1995.
Newspapers have become more aware of precisely what the Budget said, and are also recognising that there has been a bigger tax hike in this year's Budget than we have ever had, certainly since the second world war. The future for ordinary middle-income families is looking bleaker than they were ever led to expect by the Government—much worse than the Government, and the party that they represent, predicted when they were trying to scaremonger about Labour's plans.
More than 500,000 extra people will be drawn into taxation and income tax because of the freezing of allowances. More than 300,000 of those people will be women. It is a Budget which, once again, makes things much more difficult for many women. The Government have tried to target one-parent families—many headed by women—and the financial opportunities for them are being constrained by the Government's behaviour.

Mr. Hendry: What about the child-care initiative?

Ms Armstrong: I will come to the child-care initiative.
There were no initiatives in the Budget to secure long-lasting recovery. It will not create the new jobs in north-west Durham that the people there are desperate for. It will not bring the new industries that we have been finding it so hard to secure. It contained no new incentives for investment and expansion for the firms in my constituency.
At the same time, the Budget has put a squeeze on public spending, which means cuts in many of the services that ordinary families and the vulnerable in our society depend upon. In particular, local government spending has been very savagely hit. That will mean that the expansion that we require in nursery education will not happen. I am sad that Tory Members are still trying to obtain pleasure out of the figures that were exceptionally well presented, I have to say, by the Chancellor.
When we look at those figures in the Red Book, we can recognise that the gloss is just that—gloss. Underneath the gloss lies a story that is much more difficult for people in areas such as mine to come to terms with. We desperately want nursery education, smaller classes in our primary schools and leisure facilities to help to promote the health and well-being of the population. It will be much more difficult to provide all of those.
The points made about local government reorganisation by the right hon. Member for Horsham (Sir P. Hordern) will be met with a wry smile in Durham. We must pay for an additional review because the Government did not like what the commissioners said the first time round. We have to pay not only for an initial review but for a second one because the commissioners did not come up with what the Government wanted.
Unemployment benefit is being slashed and, conveniently, approximately 240,000 people will be removed from the register. More than 600 people in my constituency have been unemployed for between six and 12 months. In October 1993, out of nearly 4,000 claimants in my


constituency, more than 2,000 had been unemployed for more than six months, and nearly 1,500 had been unemployed for more than a year. Long-term unemployment is a reality in my constituency. It is not an area where a person can lose a job and quickly get another.
Conservative Members should consider more carefully the social consequences, the family consequences and the community consequences of unemployment. Unemployment is breaking up families, breaking up communities and bringing enormous distress to those communities. It was an insult for the Chancellor to imply that that is because people are not looking for work; that was something that many found too hard to bear.
On top of that, invalidity benefit is to be taxed. In areas such as mine, more people tend to claim invalidity benefit. That may be because of the increased numbers on unemployment benefit. It may be because the type of industrial work that many of them have done in the past has made them less able to work. That is a part of the Government's great insult. People who have worked and made commitments are having everything withdrawn from them, and they are being blamed for the economic mess that the Government have created.
I initially welcomed the announcement about the child-care allowance. I have argued for something like that and for the Government to introduce a national child-care strategy for a long time. Such a strategy would enable us to do our best for our youngest children and give women the opportunity to go back to work.
I hope that the Chief Secretary will tell me that I am wrong, but my understanding is that the total amount available for family credit will not be raised. I have discussed this with the Library, and it seems that if people are drawing the full amount they will not be entitled to any extra for child care. Two thirds of families are on the lowest salaries and are entitled to the maximum family credit, and they will not gain a penny. Some 90 per cent. of single parents with one child, who are entitled to family credit, will not gain a penny from this initiative. It is a fraud.

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse): Order.

Mr. Richard Ottaway: As someone who introduced two private Member's Bills, in 1986 and 1987, about the late payment of debt, I give a very warm welcome to the consultation that has been announced on the statutory right to interest.
I disagree with my right hon. Friend the Member for Horsham (Sir. P. Hordern). I believe that the March Budget was right to delay the impact of the tax increases to allow the economy time and room to recover. That is now clearly happening. It is also clear that, although we have a debt problem, it is not a debt crisis.
Against that background, the Budget had to do two things: first, it had to prove that the deficit would be substantially reduced; secondly, it had to support the economic upturn without causing inflation. The judgment of both of those issues has to be considered in global, national and local terms—in my case, in Croydon.
Globally, it is clear that the markets have given the Budget the thumbs-up. The pound has strengthened since last Tuesday—up one cent against the dollar and three pfennigs against the deutschmark. That is because of the

Chancellor's determination to control the deficit. The market looked at the overall picture and liked what it saw. It saw inflation coming down, output going up, unit costs coming down and productivity going up. It saw unemployment falling—and, having reached a verdict, it raised its stocks. In short, everything that ought to be going up is doing so, and everything that ought to be coming down is doing so.
Let us compare that with the picture in the rest of Europe. Spain has a 24 per cent. unemployment rate; Belgium has had a general strike; in France, every £100 ticket issued by Air France is subsidised by the taxpayer to the tune of £10.
Nationally, the situation looks a little different. This was a tough and pragmatic Budget, showing a sense of realism. Most important, it addressed the deficit; however, it also contained welcome increases in health and education expenditure. Those increases can be achieved by means of reductions in expenditure on defence, local government and transport, all of which I believe can be justified.
A certain amount of pain is bound to accompany the cuts in the defence budget, but they were inevitable. Indeed, now that the cold war is clearly over we should ask why we cannot reduce defence expenditure even more. The local government reduction can be managed: we need only look at a good Conservative council like Croydon to see how reductions in grant can be absorbed. Croydon council is sub-contracting out no fewer than six departments, which will result in huge improvements in efficiency and much less dependence on central Government funding. As for transport, road costs are now falling dramatically; given the current lower interest rates, I sincerely hope that the cuts will have little impact.
The most interesting aspect of the Budget is the fact that the deficit is being reduced not through a widening of the VAT base—which many expected—but through greater control of spending. How is that done? First, I belive that the unified Budget has given us a greater focus on the need to balance expenditure with taxation; I think that this vindicates the decision to present such a Budget. Secondly, there are the accounting reforms to be imposed on Departments, which will adopt private acounting practices. I understand that they will follow the New Zealand model, which has resulted in better management of public finances and resources. That is a critical aspect of the Budget. It will work only if spending control is effective.
Critics have said that huge tax rises will kill off the recovery. I think that that ignores two important points. Last week, Goldman Sachs commented that the tax rises would knock 1·5 per cent. off the growth in gross domestic product. But that is offset by the 0·5 per cent. cut in interest rates announced two weeks ago, and by cuts made over the past two years which have yet to work their way through the system. Those cuts have, in effect, produced a subsidy to industry of some £12 billion, which is bound to be of huge benefit to British industry as a whole. It cannot be disputed, however, that large tax rises are in the pipeline. If the recovery stumbles, the Chancellor should not hesitate to cut interest rates again.
Thirdly, what does Croydon man think of the Budget? The small business man will certainly have a smile on his face, as will the lone mother—or father, for that matter —who wants to return to work; she, or he, will welcome the new child-care allowance. Croydon's success, however, really depends on the prosperity of London.


I agree with my right hon. Friend the Member for Brent, North (Sir R. Boyson): London must remain the commercial centre of the world. If it is to achieve that, four essential ingredients are necessary.
The first of those ingredients was introduced back in the mists of time, in 1980: it was the abolition of exchange-control regulations and the introduction of the free flow of capital—a measure opposed by the Labour party. Secondly, London must have the best telecommunications in the world, which it now has—Britain's telecommunications companies now lead the world. The Government's privatisation of those companies was also opposed by Labour.
Thirdly, my constituents want to be able to commute from Croydon to their work in London. Services from Croydon to London are much better than many people would give them credit for being: there are no fewer than 10 trains per hour from East Croydon to the centre of London. I also welcome the announcements about the infrastructure and the extension of the light railway; slowly but surely, too, the Jubilee line is making progress.
None the less, I must utter a murmur of dissent. We need better trunk roads to south London. For instance, it is imperative that the Coulsdon bypass, which is planned to go through the middle of my constituency, remains part of the Department of Transport's road programme. Hon. Members who get off the plane at Gatwick will know exactly what I mean: the traffic goes straight up the M23 into my constituency and is then funnelled into a single lane, causing intense traffic congestion.
It is said that we must get more people off the roads and on to the trains, but that will never happen unless we can correct the price imbalance. In that context, I warmly welcome the motorway pricing measures announced in the Budget, and the consultation that is to take place. I also welcome Labour's support for that policy.
London also needs the best leisure facilities in the world. Over the weekend, the news dribbled out that the two London orchestras which were under threat have now been saved. Indeed, a decision to shut them down would have been astonishing.
There is no doubt that there are hefty tax rises to come, but they are comfortably controlled. The two tests that I set have both been achieved. The deficit will soon show signs of coming under control, and this is not an inflationary Budget—how could it be, with some £12 billion coming out of the economy? The Chancellor has achieved both those aims, and I give him my full support.

Mr. Dafydd Wigley: I should like to say a few nice things about the Chancellor's first Budget, but I find it rather difficult. I certainly agree that we need a new apprenticeship scheme, although I think that the provisions should go much further than has been suggested. I also welcome the proposal to offset the cost of child minding, and the moves to charge interest on the late payment of commercial debt—along with certain other provisions for small companies. I regret very much that the retirement age for women is moving up to 65 rather than men's retirement age moving down to 60; much-needed jobs could have been created. I also fear that the changes in sick pay may result in the moving of state responsibilities to the private

sector, and I greatly regret the erosion of student grants. Many low-income families have an understandable fear of loans, and will not accept a loan-based regime for university education.
My main worry, however, concerns the total lack of basic strategy in the Budget. I fear that taking £11 billion out of the economy will undermine any possible upturn. It was interesting to note that those points were picked up by the more serious newspapers over the weekend. An editorial in The Observer commented:
behind Mr. Clarke's glib manner and slick presentation lies the most deflationary Budget in recent history. The Budget is a serious gamble with the current economic recovery … Far from being designed to reduce unemployment, this Budget is likely to increase it".
Another editorial, in The Sunday Times, observes:
Next year alone more than £11 billion will be taken out of the economy in extra taxes and reduced public spending. That might not be enough to abort the recovery but it hardly helps promote vigorous growth after the longest recession since the 1930s …
The government's position would be more comfortable if the Treasury understood the nature of this recovery.
I believe that those comments underline the fear that the unemployment crisis which still faces so many of our communities will not be overcome.
The Government seem to have given up the fight against unemployment: the costs of unemployment built into the long-term expenditure programme seem to be on an even keel, which implies that the current unacceptable level will continue.
The Chancellor should have retained the present level of PSBR at least, if not slightly increased it to try to stimulate the economy. If we can sustain the low inflation rate that we have at present, with the current PSBR, it ought to be possible to live with it for a little longer. That situation should be facilitating capital expenditure in areas that include schools, universities and hospitals, yet the plans announced are to reduce capital expenditure from £29 billion to £20 billion by 1997. I would like to see capital expenditure programmes increased to encourage the construction industry, especially. It is ridiculous that we are willing to live with such levels of unemployment when those unemployed people could be used to build the capital assets that are greatly needed in so many parts of our communities.
I am concerned that there is not more money being invested in energy efficiency and conservation. I acknowledge that steps have been taken along that route, but a comprehensive programme is neeeded which will help all low-income households, pensioners, and disabled people to cut household bills, to reduce energy consumption, to protect the environment and to create jobs. That would have been a beneficial step involving an expenditure programme of between £1·5 billion and £2·5 billion.
Infrastructure work to the railway network in Wales is needed. The electrification of the north and south Wales line is needed as much as the announced expenditure on the west-coast line.
I am concerned at the effects of cuts on local government services. We know the effects of those cuts in England and I am worried that the same may happen in Wales. Page 118 of the Red Book shows that the level of public expenditure in Wales will remain static at £6·2 billion in real terms from 1994 to 1997. Given the demographic increases, which will lead to an increased demand for health services, I suspect that there will be an inevitable erosion of community care services. That is


worrying. In addition, local government reorganisation will cost at least £150 million, which means that other services will suffer.
People may ask where the money would come from to pay for what I would like to see happen. The level of expenditure on weapons of war in the post cold war era is Unsustainable. Spending £23,000 million on armaments is well over the top. The United Kingdom spends more than 4 per cent. of GDP on defence, compared with 1·6 per cent. in Spain, 2 per cent. in Italy, and 2 per cent. in Canada. Of our European Union partners, only Greece spends more on armaments. Surely it is now time to look for cuts in that area.
As I represent a rural constituency, I have obvious foreboding about the effect of increases in the cost of petrol. Between now and the general election, I can envisage petrol at £3 a gallon, which would be devastating for rural areas, not only directly hitting people on low incomes who have no alternative transport, but pushing up other costs. The issue of urban traffic pollution should have been more comprehensively addressed by road taxation rather than hitting those who have no alternative, such as those in rural areas.
At my constituency surgery this weekend, a pensioner told me that, living by herself, she spends between £15 to £20 a week on warming her house. VAT at 17·5 per cent. will result in an increase of between £2·60 and £3·50 in her fuel bills. She will receive £1 extra from the Exchequer, which means she is between £1·50 and £2·50 worse off. That extra cost will hit many disabled and elderly people hard and the Government will pay a price for that.
The changes to unemployment benefit are also worrying to me, especially as I represent an area that has a seasonal economy. Awarding unemployment benefit to seasonal workers recently was seen as a step forward, but some of those claimants will now lose their benefit. I suspect that we shall see the Government tinkering with the unemployment statistics to play down the level of unemployment if we are to define them not only as people who are out of work, but those who draw unemployment benefit.
As for the vicious ending of invalidity benefit and what that may mean, the citizens advice bureaux have drawn our attention to the many severely disabled people having their invalidity benefit withdrawn because they are classified as being capable of holding jobs such as being an artist's model. A person may be able to sit reasonably still in a chair to perform that function, but how many jobs are there in any community for artists' models? Defining a severely disabled person as employable on the basis of being an artist's model is an ominous portent of what we shall face with the new system. Disabled persons' organisations will need to fight that issue forcefully.
The non-indexation of taxation could be insidious over the years. It will draw people on low incomes into the tax net. A single person earning £66 a week may not pay tax this year but may have a wage increase of £2 a week and suddenly have to do so—perhaps only at a rate of 40p per week, but nevertheless that person would be drawn into the tax net and all its accompanying bureaucracy. The Government are stupid not to index the threshold levels for income tax and they should reconsider that.
The Budget is strategically misguided and is especially hard on vulnerable people—disabled people, pensioners, unemployed people, students, low income families and the rural poor. I remember an old trade union friend telling me

once that what is morally right can never be politically wrong. I believe that the Budget is morally and socially wrong. It can never be politically right. It is cynical in the extreme and the Government will pay the price.

Mrs. Cheryl Gillan: I totally disagree with the closing remarks of the hon. Member for Caernarfon (Mr. Wigley). On the contrary, I congratulate my right hon. and learned Friend on a Budget that has restored confidence in the City, in world markets, and certainly among my constituents.
At the weekend, I took soundings of opinion in my constituency, and I am pleased to report that they feel that the Government are in charge of events, rather than events overtaking us. That is reflected in the reception that the Budget has received throughout the City and especially from the CBI, the Department of Trade and Industry and not least an organisation based in my constituency, the National House Building Council. The chief executive, Basil Bean, said:
We have been encouraged by this month's signs of recovery in the UK's private house-building industry, and by today's Budget which should sustain this recovery … We were particularly pleased to see the Government's continued commitment to the same level of social housing production over the next few years.
The figures show that an average of 636 new homes were sold per day in November—a return to the levels of June and July. That is certainly a sign that the Budget has brought a great deal of confidence.
However, there are a few areas that do not perhaps grab the headlines, and certainly have not been mentioned frequently in the Chamber—especially the Export Credits Guarantee Department premium rates reduction. I was delighted that the President of the Board of Trade announced those reductions, because any cut in premiums is good news.
Banks and companies involved in exporting have been complaining for some time that ECGD premiums in a number of markets are much higher than those of a number of our competitors. Many United Kingdom exporters have felt that they have entered the bidding process with, effectively, one hand tied behind their back.
The announcement of the premium rate reduction clearly shows that the President of the Board of Trade has been listening, but there is still progress to be made in those markets. For a recent project in Mexico, for example, the French premium was quoted at 2·1 per cent., and on capital only, while the ECGD figure, even with a new lower premium, was 3·5 per cent. on both principal and interest.
One of the keys to our economy's continued good growth is our ability to export more to a wide range of markets. The world markets, while increasing, are also being approached by our competitors in a more organised fashion. Only a couple of weeks ago, there was a successful Asia-Pacific Economic Co-operation Forum meeting—a precursor, I believe, to a more formal regional trading alliance among the Pacific rim countries. Even China and Taiwan managed to sublimate their continuing political differences to discuss matters of common interest.
We need to be well aware of the levels of co-operation that could emerge from this highly productive region, which we ignore at our peril. Even with the extra cover announced, there is still more to be done. I ask my right


hon. Friend the President of the Board of Trade to monitor our rates constantly and to give the extra help that our exporting companies require.
I now turn to fuel, but not the fuel that has come to the forefront of our Budget debates. I refer to the North sea oil industry, and to the problems of competition and the possibility of wasteful expenditure resulting from changes in that region.
My hon. Friend the Financial Secretary said in Committee on 29 June:
It is not the Government's aim to encourage wasteful duplication of infrastructure as opposed to fair competition. We embrace the objective of competition in an undistorted market".—[Official Report, Standing Committee A, 29 June 1993; c. 633.]
I remind him of his words, and I should like him to focus on some continuing problems which require his attention despite the attempts to address the competition problems identified by the participants in CATS, the central area transmission system—the gas transportation system.
Concerns have been expressed to me about the unfair way in which the petroleum revenue tax changes distort the competitive position of other long-established companies operating in the North sea. There is also some concern that PRT, which was intended as a tax on oil and gas production, continues to attract profits from the transporting of oil and gas. The abolition of PRT for some but not all fields puts long-established North sea participants at a competitive disadvantage. Why should a long-established field be subject to PRT on its income from transporting oil and gas when a new field is not?
That unfair competition could lead to wasteful and environmentally unfriendly expenditure on new pipeline systems that the North sea and this country do not need. The Government really should not pick and choose. If North sea tax changes have distorted the competitive position, they should be looked at as a whole and not selectively.
Could we consider taking tariff income out of charge to PRT for new and old fields alike, or at the very least, could we reinstate the tariff receipts allowance on income from new fields? To do nothing could put existing pipeline systems at a competitive disadvantage and could lead to wasteful expenditure on unnecessary pipeline systems. Our resources should be targeted at finding new oil and gas fields around our island and not at littering the sea bed with extra pipelines which we do not need. I hope that these matters can be discussed more widely, so that the fears expressed to me do not become a reality.
I welcome the proposal to simplify the taxation of the self-employed and to move to self-assessment. However, although it may be a simplification to change to a current-year basis for the self-employed, the change from the present position will be far from simple. I shall look at the Finance Bill carefully to see how that change will be achieved.
Are we right to change to self-assessment so rapidly, more or less at the same time as we are changing to a current-year basis? That warrants further consideration, especially from the perspective of the timing of the changes. I hope that my hon. Friend the Financial Secretary can give me assurances on this matter, which affects many of my constituents.
I speak now as a member of the Select Committee on Science and Technology. I express my concern about the

support that we are giving, or rather not giving, to research and development, especially as it relates to industry. I know that many hon. Members on both sides are, like myself, concerned about the reductions in defence expenditure. I am especially concerned about the reductions in Department of Trade and Industry expenditure, because, if I have interpreted the figures in the Red Book correctly, the DTI appears to face a reduction of almost 60 per cent. between 1993–94 and 1996–97.
I agree wholeheartedly that we should support women with children through the new provisions on child care. I am absolutely delighted, as are many of my constituents, by the announcement of the help that we are giving to those least able to pay VAT on fuel. But surely we should be doing more to help our wealth-creating sector. Such help is not immediately obvious to me from the figures for the DTI. I look forward with great interest to a more detailed analysis of the DTI's programme from my right hon. Friend the President of the Board of Trade.
On behalf of my constituents, I say a big "thank you" to my right hon. and learned Friend the Chancellor and his Treasury team. I say that especially on behalf of the editors of my local newspapers, including the Examiner, the Advertiser and the Bucks Free Press. It makes a change for a Member of Parliament to advertise local newspapers in this place and not criticise them. I also say a "thank you" on behalf of Halstan's, a very small specialist printers in my constituency which still produces hand-written sheet music.
All those organisations would have been badly affected if we had introduced VAT on publications. I ask my right hon. and learned Friend the Chancellor to remember, if he is thinking of introducing VAT on publications in his next Budget, that newspapers and small printers, such as Halstan's, will be in real trouble if he does.
This Budget was a thoughtful one, and a difficult one to deliver. I believe most fundamentally, after the reaction in my constituency, that it has manifestly improved the Government's chances of winning the next general election. This was my right hon. and learned Friend's first Budget; it was a first-class Budget.

Mr. Bill Etherington: In 1968, I listened very carefully to the Budget, because I was concerned that there was likely to be a rise in interest rates, and I was contemplating purchasing a house. I mention that so that Conservative Members realise that there are people who still remember what life was like before a Conservative Government. Having heard Conservative Members reciting commercial data and saying how satisfied the City and industry are, I am even more determined to ensure that I never forget those days.
I am concerned about the person in the street. My constituents, unlike those of the hon. Member for Chesham and Amersham (Mrs. Gillan), do not take a sanguine view of the Budget. That is understandable, because in my neck of the woods male unemployment stands at 20·4 per cent.
I want to register a protest about the misuse of words by the Chancellor. He no longer talks about unemployed people, but about job seekers, and we now have job seeker's benefit instead of unemployment benefit. The new expression has connotations of the workhouse mentality. In a sensible and civilised society, anyone who was seen to be seeking something that did not exist would normally be


regarded as a fool. We now have job seekers who are seeking jobs that do not exist. In Sunderland, North, they have not existed for a long time. There is little in the Budget to lead us to believe that that position will change.
I was pleased by two points. I was very pleased to hear that the Chancellor intended to do something about tax evasion and tax avoidance; I thought that that was admirable. I then pondered a little, and I realised that that objective was unattainable under this Government, because it would bring them into direct conflict with the business interests on which they rely. Tax evasion does not come only from odd individuals who do not have much money, and it does not come from social security scroungers. It normally comes from fairly large vested interests, as the record shows.
I remember Lord Healey as Labour Chancellor saying that he would tax the rich until the pips squeaked. He probably meant what he said, but unfortunately, after his term in office, the rich got richer and the poor got poorer —although not to the extent that has been the case since 1979.
We have also heard that we are going back to the apprenticeship scheme. I am pleased about that. Like many other people, I was an apprentice in the north-east, and, at that time, there were apprentice electricians, fitters, boilermakers, welders and shipwrights. Almost every trade was covered, because a tremendous amount of industry was thriving at the time when I served my apprenticeship. If the apprentice scheme is brought back now, all my constituents can look forward to is being apprentice job seekers. That is what would be brought back to the north-east.
The Chancellor has said four or five times that he is a great believer in indirect taxation. I am not, because I recognise it for what it is—a redistribution of wealth away from the poor to help the rich. It is no coincidence that, at a time when we have a massive public sector borrowing requirement debt, the estimated amount of tax which has been given back to the wealthy since 1979 by various pieces of legislation is now worth the equivalent of approximately £5 billion per annum. That would have gone a long way to help to get rid of the debt.
Another alarming thing is that the debt is not a slow thing which has accrued gently during the years. Three or four years ago, the nation was in profit. It is only in the past three years that the debt has escalated to its present level.
The Budget is likely to cause more unemployment, not less. Local authorities will be under greater financial pressure than they are now, and that will lead to unemployment. The Chancellor talks about efficiency in the public service industries. If those industries are to get no extra money and they are expected to carry out the same work and be more efficient, that can only mean one thing —more people unemployed, with those who are left having to do more work for the same money. That has been the history of the Government, and it is the way they operate.
The hon. Member for Chesham and Amersham said that she was pleased with the housing situation. Compared to what this nation showed itself to be capable of in the 1950s and 1960s—under both Labour and Conservative Administrations—the present housing programme looks poor indeed. There is the plight of the homeless and of those who are badly housed. The only answer that seems to be put forward is to bring back the private landlord system.

Mrs. Gillan: Will the hon. Gentleman give way?

Mr. Etherington: I only have 10 minutes to speak, so I am not prepared to give way. That is not out of churlishness, but because there is a shortage of time. I find that 10 minutes goes by quickly.
The hon. Lady mentioned research in this country. I attended a Committee meeting last week at which I elicited the fact that research in the United States and in Japan represents 3 per cent. of their GNP. In this country, research represents 2 per cent. of GNP. That is quite a difference, and it has come about because the nation has completely abdicated its responsibility. The Government have left everything to free market forces, and those forces are not working.
We are not creating wealth in this country. Instead, we are recirculating money, and that is what the Budget is about. Until the Government have the courage and the political will to ensure that our citizens who do well in times of prosperity make a commensurate contribution in times of adversity, we will get no further on. It is an absolute insult that the Government are looking for scapegoats, be it the unemployed, single mothers or, worst of all, those who are drawing invalidity benefit.
It is all very fine for hon. Members who are earning £30,000 a year, and for Ministers who are on twice that, to be speaking out from on high and telling the poor how they should run their lives. The Government say that the poor are a burden on the state and they they cannot afford to service them properly.
I will now speak about motoring tax. There are many people in my constituency for whom the only way to get work is to travel up to 100 miles a day for civil engineering or building work. They need vehicles to enable them to carry out that work. I do not see them running many Jaguars or Porsches—the vehicles are usually fairly modest—but the increase in taxation on fuel will hit them particularly hard.
I will not be altogether ridiculous and say that the £5 increase in vehicle tax will make any difference. Every hon. Member will not notice the increase, but there are many out there who will, including people who live in villages where there is one bus per hour, and the only way in which they can get about is by the use of their own transport. If we had a better public transport system, that would not be the case.
I have heard a lot of complaints and worries expressed during the past year concerning the overseas aid budget. I am afraid that the budget has been cut in real terms. It is a bad state of affairs when a country which agrees in principle to pay 0·7 per cent. of its GNP then pays one third of that. That does not give much sense of pride as a Member.
I remember when this country used to be known as the workshop of the world. Under the present Administration, it is becoming the sweatshop of Europe. The Budget must be taken within that context.

Mr. Nigel Forman: I wish that I had the time to take up many of the points made by the hon. Member for Sunderland, North (Mr. Etherington). I will content myself by commenting that the hon. Gentleman predicted in his speech that one effect of the Budget would be to reduce the prospects for his


constituents who are seeking jobs and those who have been seeking them for a long time, in the case of the long-term unemployed.
I believe that the hon. Gentleman is wrong about that, for some of the reasons which I mentioned in my intervention on the hon. Member for Bath (Mr. Foster) regarding the package for small businesses. I would gently point out to the hon. Gentleman that the shadow Chancellor, the hon. Member for Dunfermline, East (Mr. Brown), predicted at the time of the March Budget that unemployment would rise as a result. Unemployment has fallen very agreeably since then and it will continue to fall under the sensible macro-economic policies of my right hon. and learned Friend.
I welcome this responsible Budget, because the Chancellor set the public deficit reduction as his highest priority. He sought to achieve that, at least in the coming year, more by putting the emphasis on public expenditure restraint than on increased taxation. I recognise that increased taxation is in the pipeline—including a good deal of taxation brought in by the previous Chancellor—but the broad judgment of the Budget was right for two principal reasons.
First, there is a continuing fragility in the economic recovery—however much that recovery is welcome—because of the fact that our main export markets are going deeper into recession, rather than coming out into recovery. Consumers in my area—southern London and the south-east generally—are still rather risk-averse and they are not inclined to borrow if they can avoid it. They are spending more time trying to restore their personal balance sheets.
Secondly, there is a good deal of taxation in the pipeline from the Budget of my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) earlier this year. If one looks at those two Budgets together and logically one should, they represent a considerable and timely fiscal tightening. That has had many good effects, not the least of which has been to reassure the markets that the way will be left open for further interest rate cuts. We must also tackle what is almost as much a moral challenge as an economic one—the enormous public deficit. If that deficit had been left untouched or unaddressed, we would have passed on unacceptable burdens to future generations.
For all those reasons, I warmly commend the thrust of the Budget. In the brief time that is available to me, I wish to make two general points which look to the future and which concern my right hon. and learned Friend's approach to future Budgets. First, on public expenditure, I hope that my right hon. and learned Friend will try consistently to focus public spending on investment rather than on consumption. He should focus on programmes which will provide the necessary public services cost-effectively, rather than transfer payments, which so often merely recycles money from one part of the middle class to another or which acts simply as a state savings bank to deal with certain contingencies in a person's lifetime. If Opposition Members asked me which kind of public investment I would particularly advocate, I would unhesitatingly refer to investment in human capital in all its forms and in physical infrastructure.
All public expenditure decisions really turn upon three questions. First, how much can the nation prudently afford

in total at any one time? Secondly, what should be the priorities within that total? Thirdly, how can we ensure the greatest possible value for money? In relation to the last two criteria, it must be right to find extra money for further and higher education, as the Government are doing, and to back real quality improvements in our schools. It must also be right to find the money to invest heavily in the improvement of British Rail's track and signalling and of London's antiquated underground system.
In any civilised and modern society, there is, and always will be, a place for some transfer payments from the rich to the poor and from the invulnerable to the vulnerable. That is what the dreadful jargon word "targeting" should mean. But other financial transfers—for example, to deal with the unfortunate contingencies in our lives—should increasingly be seen as our own responsibility rather than that of the taxpayer whenever that is possible. For example, better-off people in full-time and secure jobs should contribute more completely and directly to the cost of rearing their own children, to the costs of elective health care at a time of their choice, and to the cost of supporting themselves in their old age, when they are likely to need more expensive forms of support.
Provision for such contingencies can be and is being made more cost-effectively even now, and I think with a degree of social justice, via private insurance arrangements, private pensions and specially tailored financial packages to help people who are asset-rich but income-poor to turn their assets into useful income schemes in their old age.
Lest I should be thought to be outlandish in what I say, I stress that all those developments can and should happen only gradually. But I believe that this is the direction in which the Chancellor and his colleagues should move in future Budgets and in future policy on both sides of the public accounts.
My other main point concerns tax policy and the interests of longer-term tax reform. Naturally, I welcome the small steps towards tax reform taken by my right hon. and learned Friend in the Budget—for example, broadening the tax base by pruning two of the most egregious tax reliefs in the shape of the married couple's allowance and mortgage interest tax relief and introducing two new taxes which, between them, will bring in an extra £1 billion.
There is more to do in future years. I suggest that what is really needed is the future reshaping and rebalancing of our entire tax system to make it as simple, efficient and publicly acceptable as possible. That could best be done by following and developing the approach of my noble Friend Lord Lawson who in his corporation tax reforms of 1984 and his personal tax reforms of 1988 very successfully broadened the base of tax in those two areas and achieved the concomitant benefits of lower rates of tax and simpler structures.
I believe that the priorities of future Budgets should be to extend the coverage of VAT virtually to all forms of consumer expenditure instead of just over half, which is the present position, and, in the process, to introduce one lower introductory rate—perhaps 8 per cent.—on the real essentials and a new standard rate which could be lower than the present standard rate—perhaps 15 per cent. That is only an illustrative example, but such a package would bring in an estimated net benefit to the Exchequer of


between £5 billion and £10 billion at current prices and would be worth while in financing desirable forms of public expenditure.
Much more important, however, it would constitute a giant step towards more of an expenditure-based tax system, advocated years ago by Professor Meade. Such a change should be accompanied by lower rates of tax on income and a move towards minimal or even no tax upon savings and capital, which would be in the interests of investment. That would produce a better balanced and more buoyant tax system, which would be good for saving, good for investment, good for thrift and good for enterprise. Provided that it was supported by generous but carefully targeted transfer payments on an income-related basis, it could also be fairer and more efficient.
Such a system would not only bring with it the benefits of taxing income and capital more lightly and expenditure and property more heavily; crucially, it would improve public motivation to work and save and make it easier for us to match our competitors in what is becoming a very competitive world market for investment—inward investment in particular. In the longer run, such a reform will become necessary—perhaps even unavoidable—if we are to safeguard our national revenue base and so enable ourselves to afford those forms of public expenditure that are desirable in a modern society.
In a modern global economy—with freedom of capital movements, an information technology that is transparent and instantaneous and firms and individuals becoming increasingly mobile—taxation upon income and capital, both corporate and individual, is becoming increasingly voluntary, or at the option of taxpayers rather than tax collectors. There is growing competition between national jurisdictions to lure in foreign investment and high net worth individuals, and those arriving on our shores can in many cases just as easily leave again if they perceive that the national tax climate is turning unfavourable. The perfectly legitimate tax avoidance industry also needs to be taken into account.
In all those ways, my suggested reforms would produce a better-balanced tax structure. I commend them to my right hon. and learned Friend the Chancellor to be considered in any tax reforms in future.

Mr. Keith Hill: Dr. Samuel Johnson, a frequent visitor in his time to my Streatham constituency, once aptly remarked that when a man is tired of London, he is tired of life. On the evidence of last week's Budget, reinforced by the statement on local government grants, this Government have clearly tired of London. The Budget, as the Evening Standard remarked with some restraint, did absolutely nothing for London. On the contrary—it represented a further catastrophic assault on London's prospects and services.
It is as if the Goverment had a death wish on them in relation to London. Nowhere is that better highlighted than in their extraordinary decision to lop another £80 million off the funding for the London underground. After a fortnight in which the tube system had been reduced to a nightmare shambles, the very least that Londoners might have expected was some kind of recognition from the Chancellor of the urgent need for the modernisation of the underground network. Instead, London Underground will receive only two thirds of what is required to run the sort

of system that the capital so desperately requires. The blunt truth is that London Transport will not even be able to maintain existing services.
There will be more cuts to come—cuts in our public transport services, to the long-term benefit of road-building projects outside London; cuts in our London hospitals, but more hospital building in the Tory heartlands of the home counties; and now the prospect of massive cuts in spending on London's schools.
Such cuts are the inevitable consequence of last week's announcements on local government finance. No fewer than 13 of the top 20 losers are London authorities. A month ago, to the usual fanfare, the Government published their league tables for schools. Of course those tables are crass and misleading. Of course they ignore the appalling handicaps with which many of our inner-city children begin their school lives. Of course they fail to take into account the often outstanding progress that such children make through their own efforts and the efforts of dedicated teachers. Of course they show very many of our inner London schools at the bottom of the league tables, and that is not in the least surprising.
Inner London is replete with the factors that lead to under achievement in education. It is entirely normal for schools in Streatham to number in their school rolls children with 50 or more non-English first languages. Homelessness, poor housing, lone parenting and unemployment are the all-too-common background experiences of many—in some schools, most—of those children, yet those are precisely the social factors that the Government have chosen to downgrade in their calculations of financial support for local authorities.
Larger classes, less help for vulnerable children and fewer day nurseries for London's children will flow from the spending announcements of last week. How will that help to break the cycle of deprivation? How will that help to lift London's schools from the bottom of the league tables? How will that help to meet the skills shortage from which London's economy so desperately suffers? There have been cuts in our education services and cuts in our health, housing and transport services. The Government are systematically stripping London of the vital sources necessary for recovery.
London has suffered the longest and the worst from the present recession. We have the largest number of unemployed of any region in the country. We have the largest number of teenagers out of work. Our rate of unemployment is way above the national average. That is no passing or transient setback. Our economic problems are structural and deep-seated, reflected in the fact that the total number of long-term unemployed in London is also higher than anywhere else in Britain.
Of course, all Londoners suffer from the decline of London's services and economy. Yet the Government, through their Budget, are planning to inflict excessive penalties on the very people whose skills and enterprise might lift the city out of its cycle of decline. It is precisely middle-income earners who will suffer most from the national insurance increases.
In London, with higher house prices, middle-income earners will also pay more through the changes in mortgage interest relief. The MIRAS changes will hit the young and aspiring who bought their homes between 1988 and 1991 especially hard. We have learnt from figures that were published today that two fifths of those people are in


London and the south-east and now have negative equity, owing more on their mortgages than the value of their homes.
In London, house insurance is higher, car insurance is higher and, consequently, the cost to middle-income earners of those increases will be greater. The truth is that the tax noose will tighten drastically on middle-income Londoners in the coming months. Will they get more from their increased tax bills? Of course not. Money for new housing has been cut; money to improve London's environment—cut; money to improve our transport services—cut; money to improve council services—cut; student grants—cut. The money to repair our hospitals, our schools, and for our local libraries has been cut, cut, cut.
There was a time when London could afford to pay out far more to the Government's coffers than we got back. That time has now passed. A drastic reassessment of London's needs is urgently overdue. We need a fair deal for Londoners and we need it now. Ministers may be tired of London; London is certainly tired of them. But there are 4·5 million voters in London.
Finally, I shall adapt the words of Sam Johnson with which I began. The longer that Ministers stay tired of London, the more likely they are to pay with their political lives.

Mr. John Butterfill: Many Conservative Members were alarmed at suggestions—indeed, assertions—in the press before the Budget that we were to face substantial increases in all forms of taxation. Therefore, we were relieved when we found that the Budget contained a balanced approach to the need to reduce the deficit substantially by reducing Government expenditure, while increasing certain taxes to reduce overall the totally unacceptable level of deficit.
I believe that the Chancellor has made the right macro-economic decisions in assembling the Budget, although I am somewhat concerned that he has chosen to underfund the deficit by about £7 billion. I understand that liquidity considerations have forced him to make that decision, and in the present circumstances that may be justifiable. I suspect that he thinks that his present rather modest forecast for growth next year may, in the outturn, be somewhat higher than he has suggested and that may assist him with that underfunding. I hope, however, that it will not become a precedent.
There is a great deal in the Budget that I applaud. First, as one can imagine, representing as I do a constituency that probably has more retired people than almost any other in the country, I was particularly pleased to see the assistance that has been given with VAT on fuel. I believe that, coupled with the reductions in the cost of fuel of 5 per cent. in the case of gas, and 3·75 per cent. with electricity, with further reductions coming next year and in following years, that will fully protect those who are most in need in our society. I am delighted that the Chancellor was able to make those decisions.
I was particularly pleased to see that my right hon. and learned Friend has assisted with business rates. You, Madam Speaker, will recollect that it was I who tabled the amendments when the Local Government Finance Bill was going through its Committee stage which limited the

increases to business to a fixed percentage per annum. I am pleased that in these difficult times the Chancellor has been able to go a little further, particularly for the small business where the proprietor lives above the premises. That was extremely welcome and, coupled with the many other measures that he has taken for small businesses, is helpful and good in the long term for jobs.
You, Madam Speaker, may also recollect my campaign for a blindness allowance, which more than half of hon. Members signed some years ago. It gave me particular pleasure to see that, at a time of considerable financial constraint, the Chancellor was able to increase the blind person's allowance by £120. That will be extremely welcome to all blind people.
I shall now turn to the schemes that have been produced to encourage investment. As a member of the Trade and Industry Select Committee, I find them welcome. Much of the evidence that has come before our Committee in recent weeks hs shown that there is no particular shortage of funding for the larger—particularly the quoted—companies, but there is a problem in finding equity finance for the smaller and unquoted companies. There has long been a need to address that. The business expansion scheme went some way, but it was heavily abused. Therefore, I am particularly pleased to see that the new enterprise investment scheme will, I hope, remove some of the abuses to which the BES was subject. But I am much more excited about the venture capital trust scheme, which, I hope, will direct the much-needed institutional investment into the unquoted sector.
One area that gives me some concern at the moment is the insurance premium tax. The insurance industry as a whole has been going through a difficult time in the United Kingdom and, compared with many of our overseas competitors in Europe, is relatively under-capitalised. That has been due to past tax structures, some of which have now been rectified, but the imposition of the tax at a time when many insurance companies have suffered appreciable losses in recent years will make it much more difficult for them, as well as for the many users of insurance who are suffering from greatly increased premiums.
Will my right hon. and learned Friend tell us what will happen, for example, to the collection of premiums that are paid in instalments? Will the tax itself be paid in instalments? What arrangements will be made? Will the tax have to be paid up front? How will he deal with the fact that it is proposed that insurance that is effected through insurance brokers will be subject to tax only on the premium and not on the broker's commission? That is entirely admirable, but it does complicate the collection arrangements.
Similarly, I am a little concerned to know that it will apply to most general risks. Perhaps my right hon. Friend will tell us whether it will apply to terrorism insurance, where the Government have come forward, very much to their credit, with a scheme that will assist in the insurance of terrorism risks. But if the additional tax is to apply to terrorism as well, might that not in itself be somewhat self-defeating?
I hope that the Chancellor will direct future Budgets towards an investment-led recovery rather than a consumer-led recovery. Many people have said that we want consumers to spend more, but a consumer-led boom is the last thing that we want. It would not help because it would only suck in more imports. We need more


encouragement of investment. For that reason, I am not at all concerned that the Chancellor should choose to concentrate on indirect rather than direct taxes.
One thing that has been wrong with our economy in the long term is that we have not had a sufficiently good savings ratio compared with most of our major competitors. We need to encourage people to save and we need taxes that encourage people to save and that encourage enterprise, rather than taxes that attack those who save or invest. On that last point, I was particularly pleased with the further relief given to capital gains tax.
Many of my hon. Friends have mentioned capital gains tax. It is an iniquitous tax and I hope that, in the long term, the Chancellor will abolish it. In the meantime, it is anomalous that someone who has invested in a company and built it up over many years will, when he disposes of it, pay the same rate of tax as somebody who has made a six-month or even three-month speculative investment. That is nonsense. The least that the Chancellor could do to redress that anomaly would be to have a sliding scale for capital gains tax whereby the longer the investment is held, the lower the marginal tax rate—preferably down to zero.

Mrs. Jane Kennedy: The self-congratulatory style of the right hon. Member for Oxford, West and Abingdon (Mr. Patten) left a bad taste in my mouth and will only contribute to the low esteem in which the public hold politicians. He made himself ridiculous. We shall be judged harshly if, as parliamentary politicians, we do not address the structural problems underlying our economic malaise. Some Tory Members believe that they have done so, but I agree with the hon. Member for Macclesfield (Mr. Winterton), who pointed out many of the failings of the Budget.
Last week, the Chancellor announced unnecessary spending cuts. I accept that spending has been switched from some sectors—largely from the contingency funds —and is being used to boost spending in health, the education service and social security. However, although I welcome the extra spending on health, it is too little too late. I have travelled down from Liverpool today, where the largest children's hospital in Europe is appealing, for the second time in two months, for qualified paediatric nursing staff to come to its aid to assist in a crisis.
Two families, from the north of England and from Wales, went to the hospital with their children who were to have heart surgery. The children were admitted to the hospital on the Wednesday, and it was expected that surgery would take place on Thursday, but the operations were cancelled at the last minute. The operation for one of those children was rescheduled to today. Instead, at 11 o'clock this morning, the family was told that the operation had to be cancelled and again the reason was a shortage of staff.
The right hon. Member for Horsham (Sir P. Hordern) spoke of the chaos that ensued when radical reform of local government and health services—introduced by Tory Governments in the early 1970s and now—failed to address the problem of lack of resources. In Liverpool, the hospital has been given impossible spending targets. It has had to reduce its staffing levels to the point where it cannot cope with the simple day-to-day crises with which one would expect it to be able to deal.
It is a pity that Conservative Members use as their only criterion of whether the Budget is a success what the City and the financial markets have to say about it. The attitude of the City of London towards investment and its short-term view of what produces profits is causing some of the problems that we have to face. The public sector deficit has provided an impetus for the Government to continue their creeping attack on the welfare state. I do not believe Tory protestations that there is no such attack. Their deeds speak louder than their words. The primary objective seems to be to achieve savings, sector by sector, while attempting to mask the effects of benefit changes.
The expenditure of the Department of Social Security for 1992–93 amounted to around £80 billion, at least £15 billion of which can be directly attributed to the recession. Elements of the remaining £65 billion are related to such cyclical expenditure. No one is suggesting that reforms are not needed, but considering possible changes to enable the welfare state more effectively to fulfil its function is entirely different from saying that current levels of spending are spiralling out of control.
The study by the DSS called "The Growth of Social Security", published in July, shows that, come the turn of the century, spending on social security will account for 12·4 per cent. of GDP compared with 12·3 per cent. now. That is assuming a growth of 2·5 per cent. in unemployment—a quarter less than at present. That sum is well within the nation's means, especially if a strategy for growth and jobs is implemented.
I wonder whether the Chancellor had a chance to see the document produced by the United Kingdom industrial group called "Manufacture or Die". In its strategy for recovery, it says:
There is …at last a growing recognition that to generate wealth it is necessary to seek markets and manufacture, to engineer or process competitively in order to add value and satisfy market needs. The service sector, which is vitally important, has to play a supporting rather than a lead role. The primary significance of manufacturing must be re-established and placed at the top of the national agenda.
Those whom I have had an opportunity to meet since the Budget, who have been actively involved at the highest level in manufacturing industry, have told me that on this Budget, the jury is still out.
I take this opportunity to apologise for getting a fact wrong last week. In the excitement of being called to ask a question after the statement by the Secretary of State for Social Security, I exaggerated the problem of unemployment in Liverpool. Frankly, the problem is so great that it does not need exaggeration. The facts of the case are that 40 per cent. of the people in the city of Liverpool have either never worked or not worked for five years. I forgot the second fact and I am pleased to be able to set the record straight. Those facts on their own demonstrate the scale of the task that is set us—and Government Departments, because they are the people who are responsible for getting us out of the mess that we are in.
In Liverpool, people take offence at the idea that young people who have been seeking work where there is none for year after year, who have gone for interview after interview, becoming excited at the prospect as each interview came along only either to go away disappointed or to feel lucky enough to be given a job that then evaporates after a couple of weeks, are deeply offended at the suggestion that they may not be genuine in their search


for work. That deep offence that the Government are giving unemployed people who are looking for the work that is not there will cost them the next election.
Last week, the Secretary of State for Social Security said that he would like to see Parliament determine that benefits go to those whom Parliament wishes to help. I believe that Parliament will be judged by what it does for those who need our help.

Mrs. Angela Browning: It was encouraging to hear support expressed by right hon. and hon. Members on both sides of the House—I am glad that the hon. Member for Bath (Mr. Foster) is in his place—for Budget measures specifically to help the small business sector. Those of us who take a particular interest in small businesses are aware that what suits the City does not always suit small businesses.
I was pleased on behalf of the Small Business Bureau, which I and other hon. Members represent, that my right hon. and learned Friend the Chancellor abolished the statutory audit for small, unincorporated companies having turnovers below £90,000. Perhaps I should declare an interest as I am married to an accountant. The change will not do me much good but it is welcomed by the small business sector. Many of us are pleased that my right hon. and learned Friend considered our representations favourably.
We welcome also the reduction in documentation for companies with a turnover below £350,000. It is important to rid small businesses of such burdens, because we shall be looking to that sector for the growth and jobs needed for recovery.
As to capital gains tax, my right hon. Friend the Member for Horsham (Sir P. Hordern) drew attention to its effect on Government revenue since the rate was linked to that of personal taxation. Although my right hon. Friend is right, it had the significant effect also of providing less private capital for reinvestment into small firms or new business start-ups. I welcome the proposal to examine the ways in which capital investment and venture capital may be attracted to the unincorporated sector. There is scope for further changes to capital gains tax, because that source of investment is not being used in the interests of small businesses, or of the Treasury in terms of revenue receipts.
The investment needed in the unincorporated sector should be of a long-term nature. There should be more competitive, fixed rate investment and also something which our European competitors have but which we lack. In Germany, for example, investment is accompanied by good business advice. That is the result of the equity holding of banks and others that invest. Such advice will be particularly important as this country emerges from recession and small businesses start to grow. At a time of growth, problems can arise with overtrading. Often, difficuties occur when order books are full and businesses must recapitalise. Sound financial advice from banks and others is as important as investment.
I welcomed the announcement by my right hon. and learned Friend that there will be consultation on late payment of debt—a subject on which there is a difference of opinion in the small business sector. The Forum of Private Business lobbied hard for interest to be statutorily

added, whereas the Federation of Small Businesses opposed that. If late payment to small businesses is to be addressed, court procedures must be reviewed. In some cases, a facility already exists for busineses to add interest to outstanding debts—but they must still proceed through the civil courts. Even if a judgment is made in their favour, they may have to return to the courts to have it enforced. It is a matter not just of having a statutory requirement but of reviewing civil court procedures and the way in which bailiffs operate. There is a remarkable difference in some areas between the efficiency of bailiffs who act for magistrates and those who act for county courts. I hope that consultation will take into account recovery procedures through the civil courts.
The 1992 Conservative manifesto promised to continue to reduce taxes as fast as we prudently could. Opposition Members had a lot to say about manifesto promises. To be imprudent in the levying of any tax would not serve the people of this country or produce a sound economy. In my own election address, with which I doubt that hon. Members are familiar—

Mr. Don Foster: indicated assent.

Mrs. Browning: If the hon. Member for Bath likes, I will put a copy in the Library. I made two promises on the economy. One was that we would build on the lower rate 20 per cent. tax band. I am pleased that my right hon. and learned Friend promised to do that in his Budget. Tiverton has lower-than-average wages, so the 20 per cent. band is important to people in my constituency.
My second promise—I am pleased to see the hon. Member for Bath nodding in approval at this, or I assume that that is why he is nodding—was that a Conservative Government would maintain sound money. When the country has a £50 billion public sector borrowing requirement, that cannot be done by giveaway Budgets which do not address the need to claw back such an overspend. It necessarily had to be a tough Budget, but it was also a sound and fair Budget.
On the Second Reading of the Finance Bill which followed the March Budget, I made what I hoped was a strong speech. I have continued to make representations that the underpinning of VAT on domestic fuel should cover all pensioners—not just those on income-related benefits. Devon has a high retirement population, and it seemed that we were being particularly hard on a group of people whom we in the Conservative party rightly encouraged to be prudent by investing in a small occupational pension or putting aside savings for their retirement. I warmly welcome the decision by my right hon. and learned Friend to extend to all pensioners additional benefits in respect of VAT on domestic fuel. I shall have no hesitation in supporting that Government measure, having lobbied hard for them to listen.
I warmly welcome also the child care allowance. Opposition spokesmen expressed concern today as to who will receive that allowance. I understand that it will help 150,000 families, including 50,000 lone parents. As someone who has long advocated tax relief on registered child care, I must not lose this opportunity to encourage my right hon. and learned Friend to consider seriously for future Budgets tax relief on bona fide child care. That would be an enormous advantage and benefit to the most common form of working family units—single parents or households where both parents have to work.
I should like to flag again one matter which, as I represent a rural constituency, it would be wrong of me to ignore: tax on petrol. I am sorry that an additional burden has been placed on the cost of petrol, because in rural areas cars are not luxuries but necessities. A large supermarket with a petrol station has recently opened quite close to my constituency. Since then, reduced-price petrol has been available and other garages have matched that station's prices. I hope, therefore, that the Financial Secretary will consider competition in the petrol industry because it would help my constituents.
I welcome the Budget and I shall have great pleasure in supporting my right hon. and learned Friend the Chancellor in the Lobby tomorrow.

Mr. Jamie Cann: The Chancellor's Budget statement on 30 November has been well received in the media, or certainly on the news pages—the financial pages seem a bit windier about it—and it has been gratefully received by Conservative Members: the civil war, for the moment, appears to be off.
What has the Chancellor done? On the spending side, housing, defence, transport and council revenue support have been ruthlessly cut. When even that did not produce sufficient savings, the contingency reserve was slashed from £7·5 billion to £3·5 billion in Tommy Cooper fashion —just like that. That £3·5 billion is only just above 1·5 per cent. of total projected spending for 1994–95. I was leader of Ipswich council for 12 years, and there was no year when the contingency figure allocated at the beginning of the financial year was less than 5 per cent. Indeed, I usually had a job making the treasurer keep it down to that figure. The Chancellor's reduction is a bold stroke for a Government who overspend on budgets as prodigiously as this one.
I notice, however, that the contingency total for 1996–97 has been left at a healthy £10·5 billion. Being a naive young man, I cannot think why the Chancellor should foresee the need for a contigency for that year three times higher than for 1994–95. I am sure that most hon. Members will share my puzzlement. We certainly should cast out of our minds any uncharitable thoughts about the timing of the next general election and the ability to have a little money in the kitty for tax cuts or yet again to send out hundreds of millions of pounds to reduce national health service patient waiting lists. The Chancellor has chosen to risk reducing his contingency this year so that he can claim to have reduced public expenditure in total. That has pleased the City. It has also obviously pleased Conservative Members as they are grinning, smirking and smiling. Whether they will be so pleased in a year's time remains to be seen.
Even those reductions—the real reduction in much-needed capital programmes and the spurious reductions in the contingency fund—cannot balance the books, so tax increases have been decreed: the largest tax increases since the Napoleonic wars according to one commentator, but perhaps the Minister will correct me if I am wrong. And the increases have fallen, of course, on the shoulders of ordinary men and women and old age pensioners.
How did the public accounts get in this mess? Why are such measures necessary? In the 1980s the Government received £146 billion in North sea oil revenues and privatisation proceeds. Some of that money, to be fair, was

spent redeeming national debt, but the vast majority of it was blown: it was used as an alternative revenue to allow massive reductions in income tax—predominantly, of course, for the very best off. As those revenues have now gone, the hole in the Government's tax base must be made up, and it is being done by imposing additional tax increases such as VAT on fuel and power, such as 1 per cent. on national insurance——

Mr. Alan Duncan: Will the hon. Gentleman give way?

Mr. Cann: No, I will not. It was spent on anything, it seems, except the one tax that is accepted by the British people as fair—that is, income tax.
On the first Monday of every month, I hold a surgery at Age Concern's old age pensioner drop-in centre in Ipswich. Today I asked the people there about nice Mr. Clarke's package of help to pay the value added tax on their fuel and power. They were not very impressed. Even if the projected compensation package covered the likely increase in their bills, which it will not, they would still not believe in it because they no longer believe a word the Government say.
The City and Conservative Members may applaud the Budget; backs have no doubt been slapped and I am sure that jolly parties have been taking place, but there is no rejoicing or smirking elsewhere. People are gritting their teeth in the knowledge that in April their real income, whether from wages, pensions or benefits, will be reduced and that their bills, unlike those of members of the Government, will rise yet again.
In Ipswich, 18,000 people signed petitions against VAT on fuel and power, as I am sure people have done in towns and cities across the country. Yet the Government take no notice. They took no notice of public opinion on the poll tax or the closure of the coal mines, but at the end of the day the Government will suffer because this is a political Budget aimed only at looking after their own. The people will take their revenge on the Government every time they are given the opportunity to do so, in ballot box after ballot box.

Mr. Charles Hendry: I willingly join my many colleagues who have congratulated my right hon. and learned Friend the Chancellor on the content and delivery of his first Budget. If I needed any persuasion of the rightness of his Budget, all that I should do would be to watch the antics and behaviour of the Opposition parties in the debate.
It is bizarre that a Budget which the Opposition tell us will damage recovery and the prospects of job creation should be welcomed by every sensible leading business organisation. It is equally bizarre that a Budget which the hon. Member for Durham, North-West (Ms Armstrong), who has left the Chamber, tells us is bad for lone parents should be welcomed by the National Council for One Parent Families. Even Mr. Gavyn Davies, who has been an adviser to the Labour party on economic policy, said that it was a brave and sensible Budget. It appears that the only people who do not recognise that, although they probably know it in their hearts but must pretend to oppose it, are members of the Labour party.
Watching the Opposition is like watching an audition for Scrooge in a Christmas pantomime. Having witnessed


the failure of the policy to bring more women into the shadow Cabinet, Labour Members know that the only way to become a member of the shadow Cabinet is to be more miserable, pessimistic and depressing than any other Labour Member.
It is one thing for the Labour party to talk down the recovery, but it is despicable and even odious to tell old people to turn off their heaters because they will not be able to afford to pay their gas and electricity bills when they know that measures in the Budget mean that people need have no such fears. It is very sad that a party which no longer has any policies or principles and which, following the Government's lead in other areas, has even contracted out their search for new ideas, should now have to rely on the politics of fear to make capital out of this debate.
We have heard nothing from the Labour party about how to stimulate economic recovery. But that is what the Budget is all about, which is why the business men in High Peak welcome it and are writing to tell me that they think the Government are on the right track. The Opposition are fundamentally wrong to say that the recovery is fragile —it is not a fragile but a cautious recovery. Business men are looking to invest, but they are taking it step by step. There was fragility at the end of the 1980s when things were boiling over. People are cautious, but the recovery is now anything but fragile.
The aspects of the debate on which I shall concentrate are those of housing, because that is a subject in which I have taken a special interest during the past months, as joint chairman of the all-party parliamentary group on homelessness. Initially, any attempt to reduce the housing budget would be viewed with concern throughout the House, but the more I consider the proposals in the Budget, the more I think that there are elements there which, through creative thinking, will enable us to tackle the problems of homelessness and of bad housing better. [HON. MEMBERS: "Hear, hear."] We constantly hear from the Opposition the mantra that we need 100,000 new houses a year. We know that if we built 100,000 new houses a year they would say, "Not enough; we need 150,000" and that if we built 150,000 they would say, "Give us 200,000." The debate always concentrates on building new houses, when already there are 800,000 houses in the country which are built but which are lying empty. The top priority for the Government, in trying to tackle the problem of underhousing and homelessness, has to be to bring those empty properties back into use.
Seventy-six thousand properties that are owned by local authorities are lying empty. That is a disgrace because those local authorities are the guardians of the public interest and if they are unable to look after those houses and bring them back into use, the houses should be turned over to members of the public who are willing to spend their money on bringing them back into use so that they can contribute to the housing stock.
Sixteen thousand houses that are currently owned by the Government are empty, but the Government have taken a direct lead on that, because the Ministry of Defence is the worst offender and directly through the Budget it will be made to bring those houses back into use. If the Government can give that sort of lead, it is a shame that Labour local authorities insist on sitting on so many empty houses.
It is in the private sector, however, where 700,000 houses are lying empty, that the biggest part of the problem exists. The Government are tackling that problem by changing the rules on terms of tenancy and now by seeking to take tougher action on squatting so that people do not have the fear about people moving into their properties.
We have already taken action in relation to flats above shops, to bring those 100,000 flats back into use, but we need to go further. In my mind, it is nonsense that one gets a council tax rebate of 50 per cent. if one has an empty property. If one runs a commercial business and chooses to keep the flat above one's shop empty, it is quite reasonable that one should pay that council tax bill in full.
The only aspect of the Budget with which I am disappointed is that there was nothing to stimulate the private rented sector because, with the loss of the business expansion scheme, there is a case for more help to be given. For example, we are already seeing the success of the rent-a-room scheme, whereby people renting out a room can get up to £60 a week. It would be legitimate to say to individuals who own houses that they could have their income from renting out those houses tax-free for the first year to encourage them back into the market. There will be no loss to the Treasury because those houses are currently lying empty.
We need to find a better use for the housing stock. There are many ways of doing that. The housing associations which reacted with some concern—I think misplaced—to the announcement in the Budget last week, can play a vital role in that. A few weeks ago, I went to see an elderly lady in my constituency. She is on income support and she owns her house outright. She is 87 and she wants to move into council accommodation. She has been told that she might have to wait 10 years and at 87 that does not please her much. It would make much more sense for housing associations to go into properties such as that, to carry out the conversion, to enable her to live in a smaller unit in her own house, with better insulation and greater ability to contain her heating costs, and then for the housing association to manage the letting out of the other portion. She will not do it on her own because, at 87, she is frightened of bringing in building contractors, but if it is made easier for her, it is something which she will be willing to do.
We could spend a small amount on bringing back into use the empty housing stock in the country and on using the housing stock better, which would cost a fraction of the cost of building new houses. If this debate does anything in terms of housing policy, it has to make us think creatively of how we bring that housing stock back into use and how we deliver better housing for all our people.
We can consider those aspects without even thinking about how we can contain demand. Over the past 14 years, there has been a net increase of 2 million houses, yet demand has outstripped supply. In addition to the measures that the Government are taking on housing, measures are being taken by my right hon. Friend the Minister for Housing and Planning, whom I am pleased to see in the Chamber—[HON. MEMBERS: "Not yet."] Well, he soon will be. I was saying that the measures that he is taking to review access to housing are important, too.
Some constituents of mine have queued for years for housing only to find that they have been pushed to the bottom of the waiting list by people who were not on it at all. In the past six months in High Peak, 45 per cent. of council house allocations have gone to single parents who


were not even on the waiting list. I do not say that they got pregnant to get a council house, but the figures show clearly that there is incontrovertible evidence that people who have been waiting on the housing list have found themselves pushed back by others who were not on it. I welcome the fact that the Government intend to look into this aspect of the problem early in the new year.
This is a Budget aimed at recovery, which is above all what the country needs. It is a Budget that will help small businesses, which have been striving in difficult circumstances in our constituencies. They welcome the measures enabling them to export more, to bring in new private sector money and to help them succeed. They know that this is a Budget for jobs and for the long-term interests of the economy. They have been making their welcome for the Budget clear to Conservative Members—and, I am sure, to Opposition Members, although the latter do not want to listen to the good news.
This is a long-term Budget. It is about getting things right in the long term, because that is what matters most. We all know that we face a difficult economic climate, but everyone knows in his heart, even though not everyone voices it, that we could not go on spending or borrowing as much as we were. We all know that higher taxes represented a decision that could not have been avoided. People have nothing but contempt for a party that pretends that there was any alternative. It was easy to pretend that, but in our hearts we all know that the Government got this Budget absolutely right.

Mr. Jack Straw: On the day Parliament reassembled, 18 October, I published a study on the decline of press reporting of Parliament which showed—

Mr. Patten: Very good it was, too.

Mr. Straw: I am glad to accept the right hon. Gentleman's approbation of that, if nothing else.
The report showed that, while reporting of Parliament was fairly consistent between 1933 and 1988, it has declined by three quarters since 1988. Reports in newspapers such as The Times and The Guardian and other so-called papers of record take up only 100 lines, compared with between 400 and 800 in the past.
Stung by my criticism of their reporting, some of the journalists responsible said that they had deserted the Chamber because contributions to debate were boring and too characteristic of yah-boo politics. Had some of those journalists sat through this debate, as some of us have, they would have been struck by the high standards of speeches by hon. Members on both sides. Many of them were thoughtful speeches, and with one singular exception, to which I shall come in a moment—

Mr. Patten: Me?

Mr. Straw: The right hon. Gentleman, whatever else he may be, is not a singular exception. As I say, with one singular exception, speeches by Conservative Back Benchers have been surprisingly muted in their support for a Budget which, only five days after its delivery, is being damned by faint praise.
The right hon. Members for Worthing (Sir T. Higgins) and for Horsham (Sir P. Hordern) raised an interesting

issue to do with the meaning of paragraph 2.07 in the Red Book, and how there has been a change in the definition of funding of the national debt.
The right hon. Gentlemen and I, and everybody else, understood that funding was defined as the sale of debt to the non-banking sector. Through this curious piece of gobbledegook, it is now deemed to include the sale of debt to the banking sector itself. Perhaps in his winding-up speech the Financial Secretary will explain that change of policy and definition.
The right hon. Member for Worthing was correct when he said that this was one of the first fundings of debt that has led to the increase in money supply about which the paragraph boasts.

Mr. Dorrell: The hon. Gentleman will have read paragraph 2.07 and will have noted that the policy change to which he refers was announced in March.

Mr. Straw: It was obviously announced with so few press notices that not only did I not notice it, which is probably natural, but neither did the right hon. Member for Worthing.

Sir Terence Higgins: I raised the matter at the time of the last Budget, but I am not sure whether I did so in the House.

Mr. Straw: That is what comes of having a non-Treasury Opposition spokesman winding up in the Budget debate.
My right hon. Friend the Member for Llanelli (Mr. Davies) made a powerful speech in which he spoke about the wheezes of the Chancellor and their resonance on someone that he once served. I shall deal with the important contribution of my hon. Friend the Member for Glasgow, Central (Mr. Watson) when I come to wider economic matters.
My hon. Friend the Member for Durham, North-West (Ms Armstong) raised the important issue of the extent and scope of the so-called child care allowance. Perhaps the Financial Secretary will deal with that in his winding-up speech. It appeared that £28 a week would be available as a disregard for virtually everybody on any kind of benefit who had a child care need.

Mr. Dorrell: No.

Mr. Straw: I said that that was the way it appeared. That is certainly not the reality and I am glad to note that the Financial Secretary confirms that. As my hon. Friend and other hon. Members have said, about 90 per cent. of family credit beneficiaries receive the maximum family credit. Therefore, it is impossible for them to have the benefit of any disregard. Will the Financial Secretary confirm that? If, as we suspect, that is correct, how will the benefit help those in greatest need—those who receive the maximum amount of family credit?

Mr. Dorrell: I am afraid that the statistic is not quite right, because fewer than a quarter of lone parents on family credit currently receive the full benefit. We expect the new allowance to help about 150,000 families, including 50,000 lone parents, who are currently on income support.

Mr. Straw: The Financial Secretary confirms, if not the proportion of beneficiaries of family credit who receive the maximum amount, the fact that those who do cannot benefit from the change.

Mr. Dorrell: That is correct.

Mr. Straw: My hon. Friend the Member for Sunderland, North (Mr. Etherington) made a good speech and my hon. Friend the Member for Streatham (Mr. Hill) reminded the House of Samuel Johnson's connection to that great constituency and to the House. I used to wonder when I read "The Life of Samuel Johnson" why he made so many trips to Streatham. I think that Mrs. Thrale was the answer, and the trips seemed to be more than in the course of duty.
My hon. Friend the Member for Liverpool, Broadgreen (Mrs. Kennedy) made a powerful speech, as did my hon. Friend the Member for Ipswich (Mr. Cann) who, for a long time, was the leader of one of the best Labour councils in the country. The singular exception as a recipient of compliments is the hon. Member for High Peak (Mr. Hendry) whose speech was full of pernicious and vacuous cliches.
I wondered how anyone could make a speech composed only of pernicious and backward cliches until I read the biographical notes in "The Times Guide to the House of Commons", to which the hon. Gentleman has acceded. That tells us everything we need to know about the hon. Gentleman and his little speeches. It tells us that he was a public relations consultant to a public relations agency. I would not normally mention this, but it should be known by a wider audience. We are told that, sad to say, the hon. Gentleman was political adviser to John Moore. I am not surprised that he has gone on to make as many mistakes as his former boss.
There will be an opportunity to debate the settlement on local government at a later date, but I wish to make three points about it on this occasion.
I notice that no Minister from the Department of the Environment—apart from the Minister for Housing, Inner Cities and Construction, who has just walked in, having changed out of a dinner jacket in five minutes flat—has adorned the Government Front Bench during the debate.
There is no doubt that the so-called settlement announced by the Secretary of State for the Environment on Thursday involves a substantial cut in what the Government planned to spend at this time last year in 1994–95 and 1995–96. I have no idea why the Secretary of State for the Environment should seek to protest about this. Table 5·4 of the Red Book makes it clear that he accepted a cut of £860 million in plans for 1994–95 and £1·5 billion in plans for 1995–96—a three times greater cut than that experienced by any other Department. The Secretary of State's idea of negotiations with the Chief Secretary must be to go into his room holding a white flag and with his hands up. I cannot think of any other tactic that would have produced such a poor result.
I know that the Secretary of State for Education is desperate for me to mention him, and now I do. He should know, as a former Minister at the Department of the Environment, that if that Department is good at one thing it is bad briefs. As to the effect of this year's and last year's settlement on jobs, he was badly briefed by the Department of the Environment and parroted the same sort of claptrap that the Secretary of State came out with on Thursday—

that last year's settlement had not led to any loss of jobs. I did not talk about teaching directly but about local authorities as a whole, and I was castigated for implying that there would be a loss of jobs.
The Secretary of State went further last Thursday and claimed that there had been an increase in the number of jobs in Birmingham. I have information from Birmingham city council, which probably knows more about its job numbers than the Secretary of State for the Environment does. During the past year, there has been a decline of 1,800 in the number of people employed in that city.
Across the country during the last year, a number of local authority employees have lost their jobs. Excluding all those who have transferred to the further education sector, where they are no longer employed directly by local government, those who have transferred to the grant-maintained sector and those who have transferred to contractors who are undertaking jobs previously done by local government, the number of people who have lost their jobs in local government exceeds 20,000. It is likely that we when we see the figures from the Local Government Management Board they will be higher.
This time last year, the then Secretary of State, now the Home Secretary, was foolish enough to say that no job losses would arise as a consequence of what he announced last December. Will the Financial Secretary be as foolish as the Home Secretary was this time last year, and offer the same kind of commitment that no job losses will follow as a result of this settlement? In our judgment, there is no doubt that jobs will indeed be lost.
My third point concerns the Government's current policy of controlling the totality of local authority expenditure, including the amounts that authorities raise from their own resources. It is that policy which has caused the current financial crisis in local government. I have never disputed the notion that central Government—with the approval of the House of Commons—have the right to set the amount of grant that local authorities should receive and the manner in which they should receive it, and to cash limit that amount; indeed, I fully support that notion, on which both sides seem to agree. What I dispute is the suggestion that it is right for the Treasury and the House to seek to control what local authorities spend from their own resources, and that authorities should then be accountable to the House and to Ministers rather than to their local electorates.
It should be borne in mind that
the present procedures lump together expenditure for which Government has differing degrees of responsibility and this blurs the status of the varous aggregates
of what central Government pay out by way of grant and what local government raises from its own resources.
A further disadvantage is that by counting the total expenditure of local authorities in the planning total, insufficient attention is paid to the grants which central government provides to local authorities".
It is also worth pointing out that
Very few other industrial countries plan public spending in this way. For federal states, such as Germany, the United States or Canada, this would conflict with their federal constitutions. But even in other unitary states such as France or the Netherlands the government generally makes budgetary plans only for central government expenditure.
Those three passages are taken from a White Paper entitled "A New Public Expenditure Planning Total", published in July 1988 by the Prime Minister when he was Chief Secretary to the Treasury. For a period during that


year, his policy was the same as that of the Labour party: to exclude from the planning total what local authorities spent from their own resources.
Let me ask the Financial Secretary a question. If the policy so eloquently expressed by the present Prime Minister was good enough for him in 1988, why has it now been repudiated? Why are we now in the absurd position whereby central Government, through a plethora of algebraic and other formulae, seek crudely to control the totality of local government spending?
Let me put another important point to the Financial Secretary. There is no doubt that, in any one year, the Government's decisions on standard spending assessments and capping will be highly disruptive to the activities of local authorities, and that they cause jobs to be lost. Evidence increasingly suggests that, over time, such control does not affect the tramline of local government spending. That emerged from an important study conducted by the London School of Economics this time last year.
My hon. Friend the Member for Glasgow, Central made some important comments about VAT on fuel, which he described as a killer tax that would undoubtedly cause more people to die from hypothermia than would otherwise be the case. On a number of occasions, we have been challenged to say how we would raise the revenue. Several times before the Budget, my hon. Friend the Member for Dunfermline, East (Mr. Brown) went out of his way to point out that several billion pounds—not just £1 billion or £2 billion—could be saved by dealing with loopholes and tax avoidance.
The Chancellor looks up. His problem is that he fails to apply himself to detail. We now know that he has not read the Maastricht treaty; nor has he read the appropriate accounts that were issued to the House last Friday. He damn well should, as should the Chief Secretary and the Financial Secretary. Paragraph 171 of the Comptroller and Auditor General's report, on the basis of information provided by the Inland Revenue, estimates the size of the hidden economy. It says:
It is not possible to assess accurately the tax loss resulting from this hidden economic activity … there may be an annual tax loss of several billion pounds per annum.
Those figures have come not from a press release of the shadow Chancellor, but the appropriation accounts published by the Comptroller and Auditor General with information from the Inland Revenue. Is the Chancellor repudiating what the Inland Revenue has told the Comptroller?

Mr. Kenneth Clarke: The hon. Gentleman is looking at the latest estimates of the kind of economy covered by black economy work in the home repairs, gardening and window cleaning parts of the economy. His hon. Friend the Member for Dunfermline, East (Mr. Brown) claims to be able to raise £2 billion extra corporation tax from closing loopholes. How much corporation tax is he going to get from off-the-books gardeners and window cleaners?

Mr. Straw: If the Chancellor had bothered to read the appropriation accounts, he would have seen that there is a big table of the amount of revenue of corporation tax that has been lost. It also states that the amount of income tax that has had to be written off has doubled from £883 million in 1991 to £1,694 million in 1992—a loss of £900 million in a single year.
If the Secretary of State had read The Daily Telegraph, as I presume that he sometimes does, he would have seen an article on Friday that said:
Britain's 'black economy' is now worth up to £48 billion a year with a subsequent loss to the taxpayer of several billion pounds".
Instead of whingeing, the Chancellor should apply himself to sorting out the black economy and retrieving that money.

Mr. Kenneth Clarke: That is a quite different set of loopholes from those usually used by the hon. Member for Dunfermline, East. The collection of the hon. Member for Blackburn is even tattier than that of the hon. Member for Dunfermline, East who usually describes as loopholes his proposals for increasing taxation on successful British business. It is scratching about among uncollected tax that goes with every system when the hon. Member for Blackburn knows perfectly well that this Budget will raise about half a billion pounds each year in closing tax loopholes that he has not identified. That sort of thing cannot explain his total lack of economic policy at any time in his speech.

Mr. Straw: I am sure that the chairman of the Inland Revenue and the Comptroller and Auditor General will be pleased to know in the morning that the Secretary of State describes the 300 pages of that carefully written document as evidence that I have been scrubbing about. It contains the most serious evidence of the extent to which people are fiddling their tax. I have not made it up. It says that there may be an annual tax loss of several billion pounds per annum arising from the black economy and the Secretary of State has done absolutely nothing about that. Even The Daily Telegraph does not believe him. That was why it ran a story on Friday about tax evaders who cost Britain billions of pounds.
The hon. Member for Macclesfield (Mr. Winterton) made a speech that was supportive of the Government in comparison to his previous speeches. Normally, there is no praise whatever for the Government in his speeches and we feel like tossing him a Labour party card. Tonight, there was an occasional half sentence of praise along with a lot of damnation. He said that the United Kingdom needs a clear economic strategy for growth and that we do not have it. The hon. Gentleman, on this as on so many other issues, was exactly right. There was no strategy in the Budget for economic growth; nor was there any strategy for industry.
It has been interesting to see how comments that were favourable to the Budget on the day after are now turning sour. The excellent Mr. Peter Riddell wrote in a studied piece in The Times this morning:
The Budget is flawed as a long-term strategy … The package adds up to an exercise in political survival … Mr. Clarke may only be sorting out the errors of the past, but that may not save him, or the Tories.
As we know, the Budget has raised taxation in breach of all the promises that the Chancellor and every other Conservative Member made at the general election. The Budget will increase dependency, and will not reduce it. It does nothing to create a nation at work to replace the nation on benefit created by the Tories. The Budget is based on promises cynically given at the general election and cynically broken ever since. The Budget is proof of two things only: that the Tory party is now a party of high taxation and that the Tory party is a party which will never be trusted again by the British people.

The Financial Secretary to the Treasury (Mr. Stephen Dorrell): The speech by the hon. Member for Blackburn (Mr. Straw) called to mind what was once said about Lord Whitelaw—that the more he blustered, the less he believed it. We have just heard the seventh contribution by Opposition Front-Bench Members to the Budget debate, and I found the experience immensely depressing. Economic policy should lie at the heart of political debate in this House and each year's Budget should lie at the heart of debate about that issue. Yet throughout this Budget debate, Opposition Front-Bench Members have made no serious attempt to address any of the issues.
Of course, it come as no surprise that the Opposition do not embrace the strategy espoused by the Government. What is disappointing is that every speech by Opposition Front-Bench Members has been lightweight, frivolous and dilettante. Their speeches have not sought to address the issues confronting the House. The issues of the Budget affect the lives of millions of people, yet Opposition Front-Bench Members seem concerned more with sound bites than with policy. The debate has been depressing for the quality of their speeches.
Where do the Opposition stand, for example, on inflation? The Government have made their position clear. We have defined our inflation objectives and we have made clear how we intend to attain those objectives. Furthermore, we are able to say that we are attaining them and that inflation is under better control than it has been for a generation. The retail prices index has been at under 2 per cent. throughout the year. The last time that that happened was in 1960. The RPI, minus mortgage interest payments —MIPS—is currently running at about 3 per cent. lower than expected and lower than at any time since 1968.
Not only the performance, but the prospects are good. Earnings are rising at half the rate of the slowest year during the 1980s. That, coupled with good manufacturing productivity. means that for the first time since 1960 unit wage costs have been falling throughout the year. That is the vital bedrock for the future security of the British economy. As my right hon. Friend the Member for Horsham (Sir P. Hordern) said, we have grown used to the euphemism of "demand management" being used as an excuse to cover for inflation and deficit. The Government have made it clear in the Budget that they do not intend to retreat behind that euphemism any longer, and my right hon. Friend was right to draw attention to the importance of that point.
My hon. Friend the Member for Croydon, South (Mr. Ottaway) also drew attention to the importance of ensuring that the Government have a credible counter-inflation policy.
Where stands the Labour party on all those issues? It would be unfair for me to say that Labour Members have said nothing. In March this year, the hon. Member for Dunfermline, East (Mr. Brown) delivered this line:
We know enough to eschew the notion that inflation can simply be ignored.
The Opposition have learnt that much. Within a year of becoming shadow Chancellor, the hon. Gentleman has learnt that inflation cannot be ignored. I suppose that we should be thankful for small mercies.

Ms Armstrong: The Chancellor told us in his Budget statement that inflation would rise. By how much does the Chief Secretary expect it to rise next year?

Mr. Dorrell: The hon. Lady will have to make do with the Financial Secretary. The Government published forecasts on Budget day demonstrating that inflation would be well within the 1 per cent. to 4 per cent. target range throughout the forecast period covered in the Budget.
The hon. Member for Dunfermline. East has said that he eschews the notion that inflation can be simply ignored, but what more does he say about it? Does he endorse the Government's counter-inflation objective? Does he endorse the criteria which were set out as to how that objective will be delivered? If he does not endorse the objective or the criteria, what would he put in their place?
All that we have as a substitute for a policy is what one might call "Brown's Law"—that interest rates should be fixed by the formula of x minus 2 per cent., where x is the prevailing rate of interest. Whatever the circumstances, interest rates—according to the hon. Gentleman—are too high. His calls for reductions in interest rates would be more persuasive if he could think of a single occasion in the past five years when he or any of his hon. Friends have argued for an increase in interest rates. It is always the Opposition's case that they are 2 per cent. too high. That is their case now, as it was right through the late 1980s. We now know that at that time the Opposition were telling us that there should be further cuts when in fact interest rates were not too high but too low.
We do not get much about monetary policy in Labour speeches either in this debate or outside the House. What of fiscal policy? In the Budget, my right hon. and learned Friend made the Government's position crystal clear. The first table of the Red Book sets out my right hon. and learned Friend's plans for the elimination of the current deficit by 1997–98, and the total elimination of the budget deficit by the end of the planning period.
My right hon. Friend the Member for Worthing (Sir T. Higgins) expressed some scepticism about the unified Budget procedures. He is less than totally enthusiastic about those new procedures, but I must say to my right hon. Friend that the new procedures have allowed us, in preparing and presenting the Budget, to demonstrate the proper balance which should exist between spending and revenue plans. Table 1.1 of the Red Book allows my right hon. and learned Friend to show how he intends to eliminate the current balance and to set clear plans to eliminate budget deficit altogether. That will be done by reducing the share of national income taken by current spending and by increasing the share of national income accounted for by Government revenues within a reasonable period.
The unified Budget that my right hon. Friend the Member for Worthing is sceptical about poses a challenge to the Opposition as well—and a challenge to which, on the strength of their contributions to the debate, every Opposition Member has failed to rise. Do the Opposition agree that we need to plan to eliminate the current deficit?

Mr. Peter Mandelson: Yes.

Mr. Dorrell: The hon. Member for Hartlepool (Mr. Mandelson) says yes, so that is something. I must tell the hon. Gentleman that every one of his hon. Friends on the Front Bench sat motionless. They do not know whether they are in favour of eliminating the Budget deficit.

Mr. Straw: When the hon. Gentleman referred to the right hon. Member for Worthing (Sir T. Higgins) I thought he was about to deal with the right hon. Gentleman's more


substantial criticism of the Budget. The right hon. Gentleman said that the Government were planning to take out by way of reducing the PSBR "too much, too soon". Will the Financial Secretary comment on that criticism of the Government's PSBR plans from the right hon. Gentleman?

Mr. Dorrell: I am sure that it was a slip of memory, but the hon. Member for Blackburn did not mention in his speech the subject that was raised by my right hon. Friend. The hon. Gentleman did not express a view as to whether the Government were moving too fast or too slowly in eliminating the budget deficit. He did not set out an alternative strategy to the House, nor did he tell us whether the budget deficit is too high or too low. The hon. Gentleman did not say what should be done about it. All that we have heard from the Opposition is a variety of different ways in which they think that the Government should spend more of the taxpayer's money.
The hon. Gentleman asked me a direct question about job prospects in local government which I will answer. In looking to the future for local government, the important thing is that we should ensure that the opportunity exists for services to be maintained and improved at acceptable cost to council tax payers. That is why, in a year in which the Government, in the central planning of their expenses, have insisted on a zero cash increase, with increases in pay paid for by increases in productivity, we are planning for a 2·3 per cent. increase in local authority expenditure. That will allow local government the opportunity to continue to see services improve without imposing unreasonable costs on council tax payers. That is the right set of objectives to give to local government in the coming year.

Mr. Straw: I am grateful to the Financial Secretary for dealing with part of my question. I raised a more fundamental issue, however: why are the Government now following a policy that is directly opposed to that followed by the Prime Minister when he was Chief Secretary and published in the White Paper in 1988? All the points that the Financial Secretary has just made were known to the Prime Minister then, so why was the policy changed?

Mr. Dorrell: For reasons that were set out clearly when we published the rationale for the new control total last year—namely, that we thought it important to have a more effective control on the total level of public expenditure accounted for by the state in its various forms in order to deliver the reduction in the share of national income accounted for by expenditure set out in table 1.1 of the Red Book—an issue about which the Opposition have eschewed any comment during the debate.
Whenever he is challenged about the Opposition's plans for fiscal policy or particular spending or tax proposals within the fiscal balance, the hon. Member for Dunfermline, East produces the same answer. He tells us that growth will solve all the problems—that there will be no difficult choices, just the opportunity for continued soft-focus sound bites. There will be no choices, no rough edges, no difficult decisions to be made.
As the shadow Chancellor puts so much weight on the prospect of growth so fast that it would absolve him from having to make any difficult decisions, we might have expected him at some time during his various utterances to let us have some ideas about how he would generate growth. What did the shadow Chancellor have to say about how growth will be created in the economy? The best that

one can say of his utterances is that they are misleading, and most of them are either misunderstandings or plain wrong.
There is no better way of illustrating that than to look at what the shadow Chancellor had to say about investment. Hon. Members on both sides of the House agree about the importance of investment. Despite what the hon. Member for Dunfermline, East said, the Government's record is rather good. If we compare the most recent six years—the six years from 1987 to 1992—with the six years when the Labour party was last in power, we find a 49 per cent. increase in real terms in business investment and a 70 per cent. increase in real terms in investment in plant and machinery. In the 1970s, United Kingdom investment grew at a rate roughly two thirds of the G7 average, whereas in the 1980s it grew at a rate roughly 175 per cent. of the G7 average. The Government's record of promoting and creating the circumstances for growth of investment —[Interruption.] My hon. Friend the Member for Macclesfield (Mr. Winterton) may be sceptical about some aspects of it, but he cannot argue with the figures, which show clearly that the investment track record of the Government through the 1980s boosted our investment performance both as compared with our own previous record and as compared with that of our G7 competitors.

Mr. Richard Burden: Would the Financial Secretary care to comment on housing investment? What does he think will be the consequences of the 8 per cent. cut in housing investment in the Budget for my constituency, where residents of the Egghill estate are told that they should turn on their taps or open their windows in the middle of December because that cuts down on condensation? Birmingham needs £1·3 billion of housing investment just to do up its housing stock. Where is the housing investment that will enable Birmingham to do that?

Mr. Dorrell: I was talking about business investment, which does not include housing investment. I must tell the hon. Member for Leicester, East (Mr. Vaz) about housing investment. We intend to deliver—in fact more than deliver—the manifesto commitment that we gave for new housing development. Furthermore, we shall do that by involving the private sector, which is something that the Labour party never counts in any of its calculations for the development of investment or economic activity.
When looking at how one promotes investment, it is important to understand why we saw such an improvement through the 1980s in this country's investment performance. The Government, including my hon. Friend the Member for Macclesfield, believe that the way to promote investment is by promoting profitability and seeing the opportunity for companies to make profits and achieve a return which attracts new investment in the future. That is why we have created the lowest rate of tax on corporate profits anywhere in the developed world.
We also believe that to attract investment into an economy it is necessary to ensure that the labour market is sufficiently flexible not to frighten off internationally mobile investment projects. It is because we have put in place the incentives and the necessary steps to create that regime that we attracted 40 per cent. of all inward investment into the EC in the late 1980s.
How does that compare with what the Labour party proposed? Although I have said that we have not heard


much from the Labour party about its monetary policy, we have not heard much from it about its fiscal policy. We do, of course, repeatedly hear from it what it proposes to do, for example, on social costs. We heard from the Leader of the Opposition when he went to the TUC meeting in September. He said that he was proud that the Labour party fought the last election on the policy of a national minimum wage, and that it remains a cornerstone of its new deal for low-paid workers.
It may be that, but it will not do much for investment. Again at that meeting, the Leader of the Opposition reiterated his support for the social chapter and furthermore promised a new right for trade unions that did not exist even in the 1970s: that employers would, under a new Labour Government, be legally obliged to recognise trade unions.
I wonder how that will play with those mergers in multinational companies who are trying to attract internationally mobile funds to come and invest in Britain. The reality is that when the Labour party reduces from generality to detail, every one of its details would have the effect of frightening off the investment that it says that it wants.
That is not all. The Labour party says it wants investment, but who are the big investors in Britain? Let us start with the privatised utilities. The Labour party wants to put a windfall tax on them.

Mr. Straw: Lower their prices.

Mr.Dorrell: That is exactly what the Labour party does not want to do. It wants to suspend the regulation and impose a windfall tax to safeguard the high prices so that it can raise extra tax out of what it calls excess profits. By its approach to the utilities, the Labour party would undermine the investment intentions of those privatised utilities.
That is part of a wider strategy, as my right hon. and learned Friend the Chancellor said earlier. It is not just the utilities that would face a higher tax if there were a re-elected Labour Government. When the hon. Member for Dunfermline, East wants to raise tax from business, we now know that he calls it a loophole.
I shall tell hon. Members on the Opposition Front Bench about corporation tax. The hon. Member for Dunfermline, East says that he wants to end underpayment of corporation tax. In plain English, he wants to put up the rate of corporation tax. He wants to abandon the foreign income dividend scheme. In plain English, he wants to

insist on double taxation of profits of international companies based in Britain. He wants to end ACT on scrip dividends.
For the first time—this is an important breakthrough for the Labour party—it is criticisng British companies, not for paying too much in dividends, but for paying too little. The ACT, it says, should be imposed because those companies are artificially depressing their dividends. Through all of those measures, the story is consistent. It is to impose tax on business, blind to the implications of that extra tax burden for the investment plans of British business.
This has been another disappointing day, with no hint from either of the Opposition Front Bench spokesmen on monetary policy or fiscal policy as to where they stand on the supply side changes. The only policy package with any detail sketched in is their commitment to reregulate the labour market—the one policy that would be damaging to economic prospects and investment in business. Every time they face a choice on economic issues they go the wrong way. They are a Jekyll and Hyde Opposition—in favour of investment and against investors, in favour of business and against business men, in favour of wealth and against wealth creation. They can never bring themselves to face choices and make the right choice to deliver the recovery that they say that they want.

It being Ten o'clock, the debate stood adjourned. Debate to be resumed tomorrow.

Orders of the Day — PARLIAMENTARY COMMISSIONER FOR ADMINISTRATION

Ordered,
That Sir Anthony Durant be discharged from the Select Committee on the Parliamentary Commissioner for Administration and Mr. Anthony Coombs be added to the Committee.—[Mr. Kirkhope.]

Orders of the Day — HEALTH

Ordered,
That Mrs. Jacqui Lait be discharged from the Health Committee and Mr. Michael Bates be added to the Committee. —[Sir Fergus Montgomery, on behalf of the Committee of Selection.]

Orders of the Day — SOCIAL SECURITY

Ordered,
That Mr. David Willetts be discharged from the Social Security Committee and Mr. Bernard Jenkin he added to the Committee.—[Sir Fergus Montgomery, on behalf of the Committee of Selection.]

Orders of the Day — TRANSPORT

Ordered,
That Mr. Peter Luff be discharged from the Transport Committee and Mr. James Hill be added to the Committee.—[Sir Fergus Montgomery, on behalf of the Committee of Selection.]

Orders of the Day — Fund Management

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Kirkhope.].

10 pm

Mr. Austin Mitchell: I rise to such an enthusiastic leaving of the audience to call, in this brief Adjournment debate, for a separation of roles between fund management and dealing in currency trading so that fund managers in currency trading are not required to trade in-house where they are at the mercy of the in-house dealers. I ask this so that we can protect the consumer and preserve the integrity of the financial markets.
The particular instance that I wish to outline arises from information brought to my attention by a young man, Evan Souliotis, former manager of the American Express bank international currency fund and its discretionary management programme. The first fund started with $18 million, but when he took it over, it had dwindled to $8 million, and the second was a new fund, which he created, with $2 million at its disposal.
Souliotis found when he took over the fund and began the new fund that, as the manager charged with the responsibility of getting the best deal for the clients of the fund, he not only had to do his dealings in-house but, in a situation that amounted to playing poker, the opponents in the game—the spot dealers in the currency trading room —knew his hand, and knew his expectations from the technical information that he had to produce each day.
Therefore, the dealers had the advantage over the fund manager, and they were dealing with him in a monopoly situation. They did not have to compete for his business: he had to go to them, and they could give him the prices that suited them, rather than the keener prices that would have been obtainable had he been able to deal outside where the spreads were wider.
Furthermore, the dealers could use him to generate profits for themselves. They were required to take two points off every trade for their own trading accounts, a requirement which the customers were not told. In addition, they could hypothetically take points for themselves, and it looked from the history of the fund, the records, as though that had been happening. That was a monopoly in which the fund manager was required to deal through in-house dealers and could not go outside for better prices, and exploitation was possible, theoretically and in practical terms.
We are dealing with huge sums. Let us take a $10 million trade, which is levied two points in and two points out, and add a hypothetical five points each way for the dealer. That is 14 points going astray on the trade, which would generate $10,000 a day in points subtracted from it. That is the equivalent of 22 per cent. interest for that fund over the whole year—all lost to the customers of that fund, and all pretty well untraceable. There are voice tapes, which are kept for two to three months, but they do not show the comparative prices outside. There is also an audit trail, but it is difficult to trace anything—not least, what competitive prices were at the time that a trade was made. In a monopoly, there was no opportunity to go outside—as American Express itself did, when currency trading, in going outside its own dealing room.
The situation was open to exploitation and to the churning of customers' accounts. That churning clearly went on before Souliotis took over, which is why the fund dwindled from $18 million to $8 million.
Having quickly assessed the situation, Souliotis restructured the fund. He lessened its exposure to the markets and cut the number of trades to stop the churning. He also kept a close eye on the dealing room, going in to secure better terms and narrower spreads for his customers. He made himself a nuisance, but the fund's performance improved. Its share price rose month by month and was profitable for the fund's customers over the six months that Souliotis ran it. That profitability, however, was at the expense of the bank, which ceased to make the previous easy profits from churning and points on each trade. Eventually, Souliotis was kept out of the dealing room, and then was fired.
Not unnaturally, Souliotis went to the regulators, and must have stumbled with sheer delight into that thick—in every sense—and dense undergrowth of regulatory structures that we call self-regulation. We should all be grateful for Souliotis's perseverance and for his attempts to bring the situation to light. Rarely do we find out what is happening in the City, particularly in dealing rooms. It is a fairly closed freemasonry, whose secrecy is paralleled by the profits involved in maintaining that secrecy.
We know little of that closed culture other than when we see on our television screens flashing lights and people shouting at each other. The real nature of those dealings is a closed book for most of us. We should be grateful to Souliotis for telling us what happened in this case.
The Securities and Futures Authority agreed that
opportunities for such malpractice appear to be many.
It agreed also that the audit trail that is typically produced makes the detection of such abuse altogether more difficult. It added, "Sorry, it's not our business—it's for the Bank of England." The Bank of England adopts a rather Nelsonian attitude to regulation. At first it said, "It's not our business, either." Later it said, "This complaint comes from a disgruntled employee and should be treated as such."
When the former Member for Birmingham, Selly Oak —Mr. Beaumont-Dark—and I took the matter up with the Bank of England, it assured us that it had inquired thoroughly into the matter. However, the bank's solicitors stated:
To the best of our client's knowledge no investigation is current or was carried out by the Bank of England.
So much for its thorough inquiry.
That was hardly surprising, for when we met Eddie George, then deputy Governor, he did not appear to me to understand commercial dealing rooms. He had spent a lot of time in the Bank of England's own dealing room, but that must be like a gentleman's club compared with the realities of commercial dealing rooms. Mr. George appeared to believe that such dealing rooms behaved like boy scouts—that one only had to tell them what to do, order them to be good and instruct them to operate at arm's length and they would immediately do so. He seemed to assume that they were honourable people.
I felt some disappointment after treading through this country's regulatory structures. The oversight committees of the United States Congress took a much keener interest in the evidence that came to light and that I was able to


send them than did our own regulators. The American committees cannot do much, but their interest is considerably greater than it is in this country.
All the regulators—from Andrew Large to Eddie George—agree that the situation is open to abuse. All were clearly embarrassed at being told that abuses could have occurred, but they would rather not know—and would rather not do anything about it.
The issue arises because one manager of two funds has one dealing room. It is possible that that dealing room is a different or peculiar culture. It is equally possible that it is typical of other dealing rooms across the City. It is possible, too, that its practices are common to other markets—gilts, commodities, equities and futures—but I am dealing only with financial markets tonight.
The sums involved are enormous, because the trades are huge. At times of rapid price movements, currencies can shift 200 to 300 points in a short period. It is not difficult, in such a burst of massive trading, to skim off five, 10, 15 or 20 points into treasuries, trading accounts or accounts of friends or of people with whom an organisation might wish to do a special deal. Indeed, Souliotis was told to do exactly that by a senior American Express treasury manager.
That money can be shifted on the points basis pretty well without trace. We think of the City as a network of honourable men whose word is their bond, but since big bang, although the change was already under way, that has not been the nature of the City or our financial institutions. It is not a network of gentlemanly capitalism of the kind that built up the commercial ties of empire. That is the old image and attitude. These are dealers: they are sharpies —barrow boys without barrows, who are living on their wits in a pretty tough jungle. How do we know that they are behaving with the integrity that is clearly required in those markets? How can we tell unless we take the obvious and, to me, essential step of imposing the necessary safeguard of requiring dealings in financial markets to be out of house?
It is fair to say that, when I put that solution to the Bank and the SFA, they gave it very brief consideration but an absolute, final and pretty unequivocal rejection. The reasons for the rejection seemed confused and wrong. It is argued—indeed, the Economic Secretary has advanced the argument to me in a letter—that it would be more expensive to require dealings to be out of house, but that is not so. It would certainly be more competitive, and whose interests are we thinking of? Surely we must think of the interests of the clients—the customers of a fund—and of the fund manager's responsibility to get the best possible deal for them.
To require dealers to be out of house so that a fund manager can have a range of prices at his disposal and can use his knowledge to exploit markets and discover who will give him the best deal is surely more sensible than making him subject to monopoly control by an in-house market whose dealers know his position and can exploit it. He cannot best serve his customers if he is subject to such monopoly control.
If we require dealings to be out of house, it allows a fund manager to use his skills, and it makes dealers work. That is the important point: rather than milking a captive market, dealers would be required to work to get better

deals and would have to compete. It is true that the bad, lazy and inefficient dealing rooms might go under, but the good, competitive, able and dynamic dealing rooms would survive and prosper, because they would be giving competitive quotes and fighting for business.
Unless they take that step, the Government are effectively saying that they do not believe in competition, because a requirement to go out of house mobilises competition, for the benefit of the consumer—for the people who invest in funds. Competition must be to their advantage, especially if it removes the monopoly.
What, therefore, is wrong with such a simple, obvious and necessary way of protecting the consumer in the financial markets, and at the same time securing the integrity of those markets? What is wrong with making the City and the dealers mobilise their skills that they constantly tell us they have on behalf of the consumers and clients, those people whose business they want to win for London, rather than merely exploiting a captive market, which is easy to do?
If the Economic Secretary will forgive me, I believe that the main interest of the debate will be to learn what excuses, and how many, he can mobilise to avoid doing that which it is so obviously his duty to do.

The Economic Secretary to the Treasury (Mr. Anthony Nelson): The hon. Member for Great Grimsby (Mr. Mitchell) is assiduous and persistent, and I congratulate him on securing this Adjournment debate and on the way in which he has pursued the issue. I have no doubt that he is motivated by a keen desire to secure investor protection, fairness in the markets and the best deal for those who use the markets.
I know from long experience in the House and in Committee that the hon. Gentleman has an outstanding record in this regard. Indeed, he has from time to time supported me when I have moved amendments to toughen investor deposit protection laws, so I am conscious of the fact that I owe him one—although I am not sure that I can deliver what he wants this evening. However, I acknowledge the sincerity of his motives, and many of the sentiments that he has expressed.
When the hon. Gentleman raised this issue with me, I was very keen to meet the gentleman to whom he referred. He may know that the hon. Member for Durham, North (Mr. Radice) came to see me, and I listened to what he had to say. The hon. Gentleman may also be aware that, in a former existence, I was an investment fund manager, with the job of passing chits to the share dealing room and the foreign exchange dealing room.
I am therefore aware of the potential for collusion, of the potential for not dealing on the finest terms for investment clients of particular banks and of the extent to which improper practices may arise if there is inadequate supervision or if the integrity of the concern is not held uppermost. I therefore take very seriously the hon. Gentleman's complaints, and I pursued inquiries on a bona fide basis to try to ascertain whether there was any substance in them.
Having looked into the matter very carefully, having written to the hon. Gentleman, and having discussed the matter again with the Governor of the Bank of England only this afternoon, I am personally sure that it would not be the right approach to engage in either the separation of


fund management as he suggests or necessarily to embark on audit trail procedures beyond those already provided. I shall explain why.
The hon. Gentleman spoke in some detail about one aspect of the way in which the foreign exchange markets operate in this country. The markets are, of course, one of the many financial sectors in which London has a leading position in the world. London's position has been won by the City being able to provide customers and participants with high-quality and competitively priced services without their fear of being exploited by underhand practices.
Those who use these services have demonstrated their confidence in our markets by the enormous flows across our exchanges every day. The hon. Gentleman may, for example, know that the daily foreign exchange turnover in London alone amounts to something like $300 billion.
That confidence is not misplaced, and the authorities attach the highest importance to maintaining the reputation of all those who operate in the market. That is why, when the hon. Gentleman first brought his concerns to me, I was keen to ensure that his points were properly examined and that the information he was able to provide was made available to the Bank of England so that it could be formally and fully investigated.
That has now been done and, as he knows, the Bank's findings have been put before the Board of Banking Supervision, so that its outside members could judge whether the Bank had done all that it should in this case. The unanimous conclusion was the it had, but, if the hon. Gentleman has any new evidence that he wishes to pass to the Bank, it will of course be considered. I understand that the upshot of that process is that the Governor and the hon. Gentleman have now agreed to differ about the merits of introducing a ban on in-house dealing by banks who manage foreign exchange funds for their customers.
I would just say as an aside about the Governor, Mr. Eddie George, to whom the hon. Gentleman referred, that I can assure him that Mr. George is fully conversant with commercial banks' practices. Few, if any, people I know are more aware of and conversant with what goes on in the commercial banking world. He enjoys my fullest confidence, and that of the rest of my hon. and right hon. Friends on the Treasury Bench.
Before I go any further, I should say that, although the hon. Gentleman first raised the issue as a result of a specific case, he has since been pursuing his concerns as ones of principle. I am sure that he is right to do so, and I should make it clear that anything I say tonight is to be interpreted in the same way. My remarks are not to be taken to refer to one specific bank or any specific funds or individuals.
To return to the central issue, a ban on in-house dealing sounds superficially attractive. It undoubtedly would prevent some dealers from skewing prices against their clients, although there is no conclusive evidence of that happening. It would, however, have other consequences too, which are far less desirable. As in so many walks of life, we have to strike a balance.
I think that we can all agree that banning motor cars would reduce the number of traffic accidents, but the social and economic consequences of doing so would massively outweigh the benefits, so we have a Highway Code instead. Just as banning cars would not stop all road accidents, so a ban on in-house dealing would not remove all possibility of abuse. It would not, for example, rule out collusion with a third party.
An argument that is sometimes heard is that such a ban would force managers to shop around for the best price —the point that the hon. Gentleman made this evening. Perhaps. In the real world, however, all banks need to offer a competitive product to their customers or they will soon start to lose business.
What happens when the in-house dealer can offer the best price to a fund, for example, by obtaining economies of scale and reduced costs by putting together an internal customer's business with dealing for the bank itself? Why should the customer not be able to benefit from that? In cases such as that, the hon. Gentleman's proposal would prevent the customer from receiving the best price in the market. That is a form of investor protection that, in my view, we can well do without.
In all markets, not just financial ones, prices vary with the nature of the transaction. Large deals often receive a different rate from small ones. Wholesale deals, or those with regular counterparties with which a firm has a wider business relationship, may take place on better terms than those which are more generally available.
In the foreign exchange markets, customers are normally quoted two-way prices, with spreads to private customers typically wider than those which banks offer one another. For small transactions, those spreads can be very large—as anyone who has bought currency or travellers' cheques at a bureau de change will readily testify.
For all those reasons, it is misleading to talk objectively about the right price for a particular foreign exchange transaction, and in the absence of such objective information I am far from convinced that the hon. Member has demonstrated that a simple ban on in-house dealing would be in the interests of investors.
I should just mention, with regard to the spreads that he quoted, two pips additional spread on, let us say, a five pip —that is to say, a four basis point spread as opposed to a three basis point spread on a deal—is not unusual as a differential between the basis on which a charge is made to a corporate client and the basis on which money is exchanged on the interbank market.
It is quite normal for the interbank market, where the average amount would be perhaps $5 million or upwards, to be on a three basis points arrangement, but for it to be a four basis points arrangement if it was dealt direct with the customer. That is because there are relationships with other banks in the interbank market; one knows the counterparty; reciprocal business is conducted; and it is not surprising that an additional margin is put on where a fund deals, even if it is an in-house fund concerned.
I believe that, in a free and increasingly international market, financial institutions should be able to compete freely in the type of product that they offer their customers. Some, wishing to attract those who share the hon. Gentleman's concerns, will choose to offer a structure in which no deals are carried out in-house. Others will opt for structures in which all deals are in-house, in the belief that they will tend over time to provide a better and cheaper service. Others will give their managers the freedom to deal either in-house or with third parties, depending on what seems most attractive at the time.
The hon. Gentleman has pointed out that segregation between dealer and fund manager is not a regulatory requirement in these or other financial markets. It is my view, and that of the Bank of England and the financial services regulators, that, so long as those offering such


products make the basis of the arrangement clear and have the controls to satisfy regulatory requirements, separation of dealing and fund management is unnecessary.
The hon. Gentleman also talked about the need for a clear audit trail. I am still not entirely clear, from his correspondence or from his speech tonight, what he has in mind here. The practices and integrity of dealings in the wholesale currency markets and commodity futures markets are matters for the Bank of England and the Securities and Investments Board. Firms regulated under the Banking and Financial Services Act 1986 must have adequate systems to control their business, including an adequate audit trail. Where these controls are inadequate, the regulators will take appropriate action. They will also investigate any evidence of fraud or malpractice.
As technology improves, firms are increasingly able to record not only the exact time and price of their transactons but the prices that were current elsewhere in the market at that time. But the fact is that, at any moment, there is a range of prices and of sizes in foreign exchange dealings, and there is a limit to what is possible in validating prices to the nearest 100th of 1 per cent. in a market where prices can move by 20 or 30 times that amount every second.
Unnecessary interference with market practices risks driving foreign exchange business—by its very nature, one of the most international of markets—out of London to our competitors overseas. I am sure that the hon. Gentleman would not advocate that.
This can also be expensive for customers: regulation does not come free. It costs time and money. In fast-moving markets such as foreign exchanges, a requirement to check with a specified number of dealers, for instance, before putting a deal through could easily mean that the price had moved against the customer before the deal could be executed.
To try to find evidence of a best price by looking at brokers' screens can also be spurious. Such prices are often no more than indicative, or are good only for a matter of seconds, and they may not be available once a comprehensive market search has been carried out and the deal comes to be done.
When business such as foreign exchange falls under section 43 of the Financial Services Act 1986, and is thus without the ambit of the Act, it is picked up under the

Banking Act and is covered by the so-called grey paper and the London code of conduct. This constitutes an annex to the regulation of the wholesale markets in sterling, foreign exchange and bullion, published by the Bank of England. It sets out the manner in which the bank intends to supervise the London wholesale markets in sterling, foreign exchange and bullion.
Central to the regulatory framework is a list of institutions which act as market makers or brokers or which have been accepted by the Bank as fit and proper. The statutory authority for this regime is section 43 of the Financial Services Act 1986.
The London code of conduct states that managers of participants
must ensure that the fiduciary and other obligations imposed on them by the general law are observed … As a general rule, deals at non-market rates should not be undertaken.
Any breaches of the code by banks will be "viewed most seriously" by the Bank of England and
may be reflected in their assessment of the fitness and propriety of these institutions.
I therefore do not believe that this is an area of unregulated activity. I accept that the nature of the market makes it difficult to fit it into the conduct-of-business rules that apply to investment concerns. Possibly, one could not prevent every transaction that might not be entirely to the benefit of investors.
They may occasionally be disadvantaged, but in such a competitive market, in which the integrity of the banks is at stake and the business they do is up for grabs, some of the largest institutions, which enjoy a high reputation for their activities in London and elsewhere—American Express, for instance—have a much greater self-interest in observing the rules of the London code of conduct.
Based on my dealings with the Bank of England, I am satisfied that the rules are most carefully enforced by everyone, from the Governor down. When necessary, investigations are undertaken and remedial measures are sought and imposed by the Bank of England.
I accept what the hon. Gentleman said about the case in question, and I understand his concerns, but I hope that my remarks will give him some reassurance. My keen assessment is that the Bank is doing a good job in this difficult area. Rules do apply, and, where necessary, lessons have been learnt.

Question put and agreed to.

Adjourned accordingly at half-past Ten o'clock.